Teaching teenagers in Shanghai to save their acorns

Public speaking is a regular part of my job and, last week, I faced my toughest audience yet: a group of 18-year-old students at Wellington College, a British international school in Shanghai.

Most of these young adults are about to gain financial independence for the first time as they prepare for university and I was there to offer advice before they head off to some of the world’s top institutions.

Financial education is something that’s sorely lacking in school systems around the world and, where it does exist, it often focuses on educating those from poorer backgrounds in order to help better their prospects. But there’s a case for educating children who have grown up in relative privilege, too, like those at Wellington.

In the UK alone, it’s expected that £5.5 trillion will pass between generations within the next 30 years. This is an unprecedented amount of inheritance and will present savers with opportunities and challenges to grow their money. While their parents may have benefited from house price growth, high return pension funds, the dot com boom and stock market highs, an 18-year-old today will require a different approach to wealth management.

Research shows that a child’s financial habits are formed for life by the age of seven and in his educational book, Save your Acorns, St. James’s Place Investment Director Robert Gardner, teaches kids to budget, save, invest, and give back. Taking lessons from Robert, I wanted to instill some basic financial principles in the Wellington kids to help them on their way.

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Lesson 1: Start saving now.

I explained that even if it’s the loose change in their pockets, saving money is worth the effort over time. And once they have savings, to stash those funds in the right places so that the money works for them. Eventually, as the money works harder, they’ll need to work less and less.

Lesson 2: Recognise the threat of inflation.

If the students’ parents had given them £100 when they were born, it would be worth £60 today in real terms thanks to inflation. When asked what they needed to retire, most said £1 million and to illustrate just how much inflation impacts their savings, I explained that they would actually need to have £3.66 million by the time they retire and that means saving £192 a day.

Lesson 3: The power of compound interest

I moved on to the power of compound interest - the only way to truly build wealth. If they start saving today and can achieve the 8 per cent historical stock market returns they would only need to save £12.72 per day, a much more manageable target.

I wanted the students to understand that we live in the most exciting period of technological change ever and that having a sound grasp of market forces will help them manage their finances. Despite the tough crowd, I left feeling that some of them really got it and it further convinced me that financial education must start young.