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Explaining the Value of Insurance to Children

January 27th, 2014 Posted in kids and money
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When you’re giving children an education in finance, one area that is vital to include is insurance. As a concept, the value of spending money on insurance can be a difficult one for children to grasp, but the tips below should help you illustrate and explain why insurance makes up an important part of a financial portfolio.

teaching children about insurance

Explain how insurance works

Put in its simplest terms, insurance is there to protect a policy holder and their possessions should they suffer losses due to theft or another unexpected event. The easiest place to start is to explain that insurance is there to protect the value of your things.

Give kids an example to make it easier to understand. If they have saved up birthday money or pocket money to buy something special, demonstrate the value of insurance with this item. Get them to remember how long it took to save up for that item and then ask what they would do in order to replace it if that item was destroyed in a fire. You could then go on to explain how having an insurance policy in place would provide the money to replace that item.

Talk about the different kinds of insurance

Explain the different kind of insurance policies that you have – the one for your car, your home (buildings and contents, explaining the differences between the two policies), health insurance and pet insurance. Show them how you can do a search for new insurance quotes on a site like igo4 limited. Pet insurance is often an easy one for kids to get their head around.

Show them your insurance policies

Unless kids see the policies, the concept can still remain a little vague. Insurance policies don’t really make for easy reading, but sitting down and going through say, your car insurance policy, will allow you to explain what different aspects of the policy mean and it will prompt questions from the children if they don’t understand something.

Get them to understand the consequences of not being insured

Use the example of your home and the contents within it to explain what kind of situation you’d be facing if you didn’t have insurance and the worst happened. Get them to imagine what would need replacing after a fire or flood or anything else that would require a rebuild or refurbishment of you home, and how impossible that would seem without having an insurance policy in place.

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Why Teach Children About Wills?

January 10th, 2014 Posted in kids and money, learning about money, Uncategorized
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image of willTeaching children about all aspects of finance early in life is important, but it needn’t be boring. The trick lies in getting children to understand the whys and wherefores of money in a way that is both fun and which will carry them through life. This isn’t about attempting to get rich; rather, it’s about instilling in them the knowledge that the sensible management of money can help bring about freedom, independence and peace of mind.

As part of this overall process, it’s also important that children understand the whole principle of inheritance. In this way, they will be better prepared for their independent financial lives when the time comes when they do inherit money – and it will help develop in them a sense of the permanence of the value of goods, property and investments.

This is a desirable thing for most parents to achieve with their children. But it’s very important not to confuse this educational process with any sense of greed or materialism; it’s a fine balance which wise and far-sighted parents should be able to achieve. And there are fun ways this can be achieved – with plenty of resources on this website to investigate.

But when it comes to leaving legacies and instilling an understanding of this whole area in children – the process is a little more delicate. Most children instinctively understand, by the time they reach somewhere around double figures in age, that life is fleeting. At this age, they’re beginning to understand the permanence of death. They’ve usually had first hand experience of a grandparent or other family member passing away – or someone else close to the family – and understand what it’s all about.

Around his sort of age, it’s perfectly sensible and natural to talk to children about things like wills and probates – and to help them understand what happens after someone’s death – to all their belongings and assets. It’s easier to talk and think in terms of something that will mean something to children rather than a person’s entire estate. There may even be a keepsake that a relative or friend has bequeathed to a child – and this can become a pleasant and happy memory; a nice way of remembering someone fondly after the initial period of grief has passed.

It’s also a good way of understand the process of bequeathing things in the way you want them.

Overall, teaching children about wills is a natural part of understanding the basics of finance in a way which will help them in later life. The knowledge that they will inherit something at some point in the future – but not to rely on such inheritance – is also helpful in allowing children to come to terms with the one inevitability of life – which is, of course, death. But instead of being in any way morbid – this knowledge should help set children’s minds free to appreciate the present and to always carpe diem whilst simultaneously being sensible with money. As the saying goes; live as though you’ll die tomorrow, but farm as if you’ll live forever.

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Child Life Insurance

July 15th, 2013 Posted in kids and money, Parent Advice
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There has been quite a bit of press recently on the subject of child life insurance. It is understandable an emotive subject. No parent wants to contemplate something happening to their child, but rather like making their own will or having adequate coverage themselves, child life insurance can provide peace of mind. Consequently, more and more life insurance companies are offering child life insurance whether as a separate insurance contract or as an additional benefit for those people that buy life insurance policies to insure their own lives.

Advantages of child life insurance

Purchasing child life insurance has some advantages that could be taken into consideration.

Future Planning – First of all, the average price of child life insurance is just £5 a month. For £60 a year the parents can buy the child a guaranteed insurability option in the future. After the child reaches adulthood, he or she can buy a new cheap life insurance policy from the same life insurance provider or renew an existing one usually at a lower premium than a new customer.

Family Illness – Similarly, child life insurance can be useful where there may be a long family history of illnesses such as diabetes or heart attack. It can provide a solution to finding affordable cover as an adult.

Financial Planning – Some child life insurance programs have saving options attached to them. This means, that a fraction of premiums are used to save the money and invest them. This sum saved can be used for children education or to cover living expenses.

Disadvantages of child life insurance

Critics argue that life insurance for children is an unnecessary thing and life insurance providers are looking to take advantage of parents that love their children.

Lost Income – Traditional adult life insurance provides cover for loss of income and in general children do not generate any money. Therefore unless they are future sporting or acting stars covering their lost earnings will not be necessary.

Other critics will argue that a person does not necessarily need life insurance until he or she takes out a mortgage or becomes married with children of their own. Until that time a person will usually be working and, as a result, many jobs will insure him / her. Therefore, they believe that guaranteed insurability option, mentioned above, is not necessary.

Free Healthcare – Unlike other countries where a long illness may run up substantial healthcare bills, in the UK this is unlikely to happen.

There is an interesting article on the topic of this and what happens to students loans on the Guardian US Money blog

Advice for choosing child life insurance policy

For those parents that decided to buy life insurance for their children after all, experts offer some advice. First of all, often the cheapest option is to buy a term life insurance contract for 20 years. What is more, it is advisable to make sure that the contract is renewable and convertible into whole life insurance policy. Furthermore, some life insurance companies do not offer child life insurance cover and a result it is wise to consult a financial broker.

The Lloyds of London’s website is a good place to start.

Last but not least, it makes sense for parents to be insured themselves fully first. One of the biggest mistakes is that parents search for life insurance for their children when they do not have life insurance themselves.

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Useful Tips For Financial Success From Parents To Their Kids

June 2nd, 2013 Posted in kids and money, learning about money
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Management of finance is an important aspect of one’s life and as parents, you should make sure that your child starts learning about it from a very young age. Listed below are a few steps that you can take to teach ways of effective financial planning to your children.

Financial success - teaching your child about money image

1) Use the piggy bank method

It is perhaps the most interesting way by which your child learns about money management. There is no point in telling him about the usefulness of saving money, or about the ill-effects of overspending when he is too young, for instance 2 to 5 years old. Therefore, use the piggy bank. Give him a dollar or two each day and ask him to deposit it in the bank. As he is rewarded with a large sum of money at the end of the month or so, he automatically will be inclined towards saving more for the coming days. Therefore, the first lesson of financial planning, i.e., the “usefulness of saving” is learnt.

2) Set Financial Goals for him

As your child grows a little older, say 7 or 8 years old, start setting short-term financial goals for him. Continue giving him a certain amount of pocket money and ask him to save up for an expensive toy or a short holiday trip that he wants. In case of the holiday trip, you can ask him to save enough money so that he can sponsor the lunch at one of the most well-known restaurants of the place you are visiting. Setting short-term financial goals from a young age always helps. In this manner, your child is slowly prepared to set long-term financial goals (like higher education) and save money accordingly.

3) Show Them the Way

Only setting monetary goals and asking your child to work on them will not be sufficient. You have to guide him as well. For instance, if you are asking him to save up for a bicycle, keep dropping hints on how he can cut down on his expenses. Ask him to cover the way to school on foot (if he can) instead of taking a cab. He does not really have to live on abstinence. However, you can definitely advise him to cut down on his entertainment costs, or his expenses on food (keeping in view that it does not harm his health) until he buys the bicycle.

4) Prioritization of goals

When your child reaches his teen, you should gradually start teaching him about the importance of prioritizing his goals. He might have got whatever he wanted as a little child but now is the time to bring about a change in his thinking. In future, there will be times when he will have to make grave choices as far as fulfilling his own wishes are concerned, for instance between an expensive car and an equally exclusive holiday trip. Therefore, start preparing him for these types of situation in life. Advise him to spend wisely. Today, if he is given a choice between keeping aside some money for his higher education and spending the same amount for a short trip with friends, he should be able to judge which is more important for him.

5) Career Tips

As parents, you possibly can’t decide the career path to be chosen by your child. It will depend on his choice, talent, and his ability to make the most of the opportunities presented to him. All you can do in this case is motivate him to follow his dreams and make sure that he gets the right kind of training that is required to transform his dreams into reality. But it would be advisable if he understands that he should choose a career that is fulfilling (in terms of job satisfaction) and lucrative as well. Only saving up money for future will not do. He should earn sufficiently as well to invest in profitable schemes so that his savings are doubled or tripled.

Marie Nelson is a passionate blogger with expertise on financial matters. The global economic crisis has been the subject of most of her recent write-ups and at present, she is writing exclusively for United Finances.

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The ‘Pocket Money for Chores’ Debate

January 18th, 2013 Posted in kids and money, Parent Advice
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The ‘Pocket Money for Chores’ Debate - should you give your child an allowanceIt’s an age old parenting question, but one which still causes a huge amount of debate: should you give your child pocket money or allowance for doing chores?

The best answer we can give you is, ‘it depends’.

One obvious reason for linking the two is to encourage a work ethic. Giving pocket money for chores teaches a simple lesson: if you do the work, you get paid. If not, you don’t. Since children in the UK can only take on part time work at the age of 13 (except for certain ‘performance’ related jobs), pocket money provides a good way to teach this lesson at an early age.

But wait a moment… shouldn’t your children be helping out with the chores around the house anyway? A key part of being a family is working as a team and recognising the hard work of others. Giving money for chores runs the danger of creating a selfish attitude, and you also run the risk of hearing comments such as: ‘So you want me to take my school bag upstairs? What are you going to pay me for that?’ Also consider what happens if a child decides they aren’t bothered about getting pocket money a particular week. Does that mean they can get away with not doing their chores?

You can immediately see the pitfalls with the system. So what is the best way to overcome them?

Each family is likely to have a slightly different approach, but one of the best systems we’ve found is to pay your child a base amount of pocket money, which is unrelated to chores. This basic amount will teach them vital decisions about money and saving – whether they save their money to get something they really want, or whether they spend it straight away for instant (but often fleeting) gratification (that’s another issue entirely)

In the meantime, children should be asked to do basic chores around the house, but can be given the opportunity to earn extra ‘rewards’ by completing chores which are beyond their usual scope. Cleaning the car, for example, is a chore many parents agree they would like to reward their children for taking on. This reward can be monetary, but could also take other forms. One good option we came across is a sticker system. Every time your child goes above and beyond what is expected of them they are allowed to put a sticker on their chart, and once they’ve reached an agreed number, they’re allowed a treat. This could take a variety of forms: maybe a special purchase you both agree on, or possibly a special trip. The advantage of this system is that the rewards are flexible and can be varied depending on the individual child’s preference.

Of course, no matter what pocket money system you use, it is almost inevitable that your children will complain about their chores at some point. But if you talk the system through with them, explain why it’s fair, and, most of all, keep it consistent, you should find that these instances become far less common.

Do you agree? What are your own experiences with pocket money and chores? Share your thoughts below.

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