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FOOL'S EYE VIEW
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One thing that amazes me is that personal finance is not part of the core curriculum in British schools. Although one educational charity, the Personal Finance Education Group, is working with schools to improve the financial awareness of both teachers and pupils, our financial education is severely lacking. This fact goes some way towards explaining why the nation's personal finances are looking pretty ropey at the moment. How can we hope to understand budgeting, spending, borrowing, saving, insuring and investing when we've never even been taught the essentials? Most of us learn about financial matters from our parents, who often don't know the basics themselves! So, without further ado, I proudly present my guide to the lessons that every parent should pass on to their children (and anyone who's bad with money, including your partners and parents!). Also, as it's April Fool's Day, I've included some light-hearted observations on family life. Lesson One: Don't spend more than you earn It sounds so obvious, doesn't it? Although this is probably the key lesson that young people need to learn, it's a very hard message to get across. These days, celebrities and pop stars are a greater influence on many youngsters than their parents are. Also, teenagers are more interested in what their friends do and say than they are in listening to the older generations. Stressing the importance of living below your means is particularly hard to get across when young people are bombarded by images of the celebrity lifestyle, and see their friends sporting the latest gear and playing with the latest gadgets. However, the key message is that the best way to struggle throughout your life is to start spending tomorrow's money today! Quip One: A great way to teach children some new rude words is to step on some Lego in bare feet. Lesson Two: Borrowing makes you broke It's hardly surprising that a massive explosion in debt has accompanied our current spending binge. When Tony Blair came to power in May 1997, personal debt in the UK totalled £500 billion. By his seventh anniversary, the figure is likely to have doubled to a trillion pounds - the largest expansion of debt in British history. The financially inexperienced usually learn that borrowing money - especially on credit and store cards, personal loans and overdrafts - can be a painful experience. Banks charge interest of up to 30% a year to borrowers - and even more to riskier customers. So, a new pair of trainers at £100 actually costs £130 with interest if you don't pay it off for a year. What's more, if you only pay the minimum monthly repayments on your credit card, it could take up to 44 years to pay off! Quip Two: "When I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished by how much he'd learned in seven years." (often misattributed to Mark Twain) Lesson Three: Saving is a magnificent habit It's vital to teach children about the virtues of saving as early as possible. For example, when we walk past our local building-society branch, I tell my two-year-old that his money is being kept safe inside. He also has a moneybox, into which I deposit my small change, which I use to help him with counting. One way to teach children about earning interest is to offer them more pocket money if they are prepared to wait for it. Offer to increase this week's pocket money by a tenth if they wait until next week - £1 now, or £1.10 next Saturday? Free learning website Bubblebank teaches you and your child how savings interest works. Quip Three: "You can learn many things from children. How much patience you have, for instance." (Franklin P Jones) Lesson Four: The world's a risky place Just as skateboarders wear helmets and padding, adults need protection from the slings and arrows of outrageous fortune. One way to deflect disaster is to shop around for: However, you can also self-insure by setting up a little savings pot for maintenance and repairs. That way, you can pay for little accidents as they happen, which means that you don't need to buy over-priced extended warranties, payment protection insurance, etc. Quip Four: "I have found the best way to give advice to your children is to find out what they want and then advise them to do it." (Harry S. Truman) Lesson Five: There are scams everywhere The golden rule here is "If it looks too good to be true, it isn't true!" Sadly, millions of people are swindled every year by scams such as Nigerian 419 frauds, bogus lotteries, boiler rooms and pyramid schemes such as Hearts. The same goes for dodgy seminars that promise to make you a property or investment millionaire in just a few short years. The only people getting rich here are the people who take your money! Learn how to recognise these schemes in Double Your Money Today!, and teach your children not to let greed overcome their common sense. Quip Five: "Always be nice to your children, because they are the ones who will choose your [nursing] home." (Phyllis Diller) Lesson Six: Gambling is a mug's game UK bookmakers, casinos and betting shops make billions of pounds every year. For example, William Hill (LSE: WMH) made £202 million last year. In fact, so good a business is gaming that it is considered to be an almost recession-proof industry. The simple truth is that, in every professionally run game of chance, the odds are stacked against the punters. The same goes for the Lotto and new EuroMillions Lottery, where only half the stake money is returned in prizes - a truly awful return! Quip Six: "Any child can tell you that the sole purpose of a middle name is so s/he can tell when s/he's in trouble." (Dennis Fakes) Lesson Seven: Investing is wonderful (but requires patience) By investing, I don't mean speculating on the future price of so-called 'alternative investments' such as art, antiques, cars, coins, stamps, whisky and wine. Here's why I avoid these. I'm talking about investing in shares: buying a stake in a company with the aim of seeing it increase in value as the company grows. As celebrated US fund manager Peter Lynch once commented, "Although it's easy to forget sometimes, a share is not a lottery ticket... it's part-ownership of a business." Since 1918, the UK stock market has returned an average of 11% a year, with income reinvested. That easily outstrips bonds, cash (and even today's favourite - property). However, the stock market reserves its greatest rewards for patient investors, which means planning five, ten, even twenty years ahead. Learn more here. Quip Seven: "Parents are the bones on which children sharpen their teeth." (Peter Ustinov) Have a great April Fool's Day! More: Visit our Savings, Insurance and Investing Centres | Funny Money | Five Ways To Become A Millionaire.