More importantly: at what age is my daughter old enough to understand compound interest?by Duncan Weldon / May 18, 2018 / Leave a comment
A couple of weeks ago, my eldest daughter told me that when she was older she would have “a big house and a fast car.” After a moment’s pause, she further noted that “it would probably cost a lot of money”. When I enquired as to where she would get the money from, she gave me the kind of dismissive look that only a five-year-old can and replied, “I’ll borrow it from a bank, silly.” Suddenly, the deep cultural roots of low Anglo-Saxon economy household savings ratios made sense to me. This stuff starts early.
Partially inspired by this exchange, I’ve decided it’s time to start some financial education.
The basic aims are to get her more familiar with money, to demonstrate the value of saving and to encourage general good financial behaviour. My earlier efforts in this regard may have been counterproductive. I encouraged her to pick a horse for the Grand National and placed a £2 bet on her behalf. Tiger Roll came in at 10/1 and the next weekend saw a trip to the toy shop. In hindsight, “gambling is a really good idea” possibly wasn’t the ideal first message to impart.
Giving her weekly pocket money, and allowing her to make decisions, seems a more promising starter point than encouraging her to read the Racing Post. But how do I begin? A quick review of online parenting forums, and an appeal for guidance on Twitter, have left me with more questions than answers.
One very common response was “why does a five-year-old need any money at all?” A fair question. The current situation is that birthdays, Christmas and overly-generous grandparental visits aside, her only discretionary consumer spending comes in the form of natty magazines, packaged with a couple of dozen stickers (which invariable end up stuck on the floor) and some sort of plastic toy, (which has a half-life of approximately three days). She ends up getting one, paid for by her parents, about once a week at a cost of anything between £3 and £5.
This has presented my first quandary. What is an appropriate amount of cash to give to a five-year-old? Suggestions on the internet range from 10p per year of age each week to £1…