As parents we occasionally wonder how to teach our children healthy money habits.
We know that what our parents taught us when were were young, we very often brought with us into adulthood. And that often includes how we handle finances.
Children who don’t learn to save and invest will be less likely to pursue that in the future. At best it will take them longer to realize the benefits of compound interest and passive income. And we all know what a huge difference it makes if you start investing at a young age.
An important aspect of teaching children healthy money habits is for the parents themselves to be good role models. That includes bad financial habits such as overspending and taking on unnecessary debt.
Cultivating good money habits also includes things such as the willingness to occasionally say ‘no’, even if you can afford what the child is asking for. This teaches them to handle a bit of adversity and that life doesn’t automatically provide everything we want.
Many parents do make an effort to teach their children about savings and to not be wasteful with money. However, parents often neglect teaching about investing those savings – perhaps because many parents themselves don’t engage in active investing schemes. Others do invest, but haven’t considered how to involve their children in this “adult” activity.
P2P lending as an educational tool
Most forms of investing requires a reasonable large starting capital and a long time span. Two things that don’t fit most children very well.
But crowdlending is easy to learn and requires very little money. Often as little as €5, and in case of Bondora even €1 can be invested. This very low barrier to entry allows anyone with a bit of pocket money to get involved.
P2P lending also provides a happy medium between long-term gains of investing and reasonably quick results. To children even one year is a very long time, not to mention the 5+ year time span of most stock portfolios. But with crowdlending you often see returns after just one month – when the interests start rolling in. That’s a much more reasonable time-span for a child, while it still teaches the benefits of long-term investing.
Crowdlending teaches children important life skills such as:
– Math. Both basic addition and subtraction, but also how to calculate percentages.
– The effects of compound interest
– That borrowing money can be expensive and requires careful consideration
– The great rewards of deferred gratification
– It gets them started early on, making investing a natural part of their lives
Crowdlending platforms only accept investors 18 years or older, so you will have to sign the child up in your name. But on most (if not all) crowdlending platforms, you can only invest what has already been added to the account, so there is no additional risk involved.