Get rid of the evil piggy, for the kid’s sake!

By Henry Adefope

How to eradicate potentially irreparable damage at childhood. The piggy bank taught a generation of children how to lose money. Time to teach how to grow wealth (like the rich kids learn).

A show of hands who had a piggy bank when they were younger? If so, sorry.

A cuddly, pink, piggy bank for the little sprog, teaching him or her the real value of saving money. What could go wrong?

I can remember my mum giving herself a pat on the back when she gave one to me and my younger brother. Her words, this ‘will teach you the real value of money, how to be responsible’ still ring sharply in the ears. 

I believed, her, and love her dearly, but she was wrong. Dead wrong. But neither of us can turn back time. As she says, ‘forget the lamentations, find the solution’.

The solution being, ‘Get rid the piggy bank forever’.

Just like the dubious Fairy Godmother, the Christmas Grinch, or Santa Claus, the piggy bank is a myth, but one more dangerous, and debilitating to the psyche further down the line, than the other two.

Saving pocket money into your piggy bank, is one of the worst financial lessons that can be taught to an adult, let alone a young, impressionable, developing young child.

The financial lessons it teaches, are horrid. So much so, that we don’t have time to reflect on just how horrid during our hard labour years in our 20s, 30s, 40s and 50s that give us limited time to reflect.

A piggy-bank state-of-mind, will prevent you being rich or wealthy, it is virtually impossible. 

Below are the three unforgivable sins of piggy-banking, that together we must eradicate:

1. Store all your cash in the same place (counter-party risk, concentration risk)
2. Let it sit there being useless (no cost of carry, no compensation, no interest, no dividends; losing money in real terms with inflation receding buying power
3. No sight of the amount saved…. (unable to plan or budget for effectively for anything and no relativity regarding the percentage of capital you’re saving relative to other costs

The ultimate sin though, is an inverse, disparately skewed reward system that ends up hurting these kids financially. The world of finance is characterised by interest rates, mortgages, credit cards, and loans. Within this, is the rule of not only paying, but earning nominal interest on cash either borrowed, or deposited. In the world of the piggy bank saving, this is invisible. 

Really wealthy children on the other hand, have trust funds, early doors. These trust funds are usually exposed to the market, so grow in value over the long-term. Very quickly, these kids understand how to use their money to accumulate more money.

Rich children have different types of savings and investment accounts, often not even opened by them, like and Junior ISAs where their parents invest small, regular amounts of cash from a young age, are similarly exposed to capital growth over the long-term.

*Simple investment race example – if you invest £50 every month, what happens in 10 years? (racetrack)

Piggy Bank - £5,852.40
Bank (cash ISA) - £6,070
Investment ISA - £7,440

Concentration of wealth is an often-talked about phenomena. Much of it is because of inequality in both cultural and monetary capital, but a small snippet, are the majority of hard-working families often not having the right tools or knowledge that allow us to work with our money and to allow money to work for us.

So let’s change the game for the next generation, let’s call it a ‘children’s bank’, a bank that teaches children to: 

Financial habits to engrain in your children:

1. Use multiple accounts - separating cash into compartments for different uses
2. Open an investment account (long-term) - so that your money makes money for you (i.e. JISA, ISA)
3. Spending - in a sustainable, disciplined way
4. Budgeting - in a sustainable, disciplined way
5. Monitoring - staying on top of finances, understanding what is and what isn’t possible
6. Define compound interest and return on investment (give them a proper reason why putting money away can be beneficial for them in the long-term)

Financial management is probably the biggest pain in life. Borrowing and using credit is one of the most ubiquitous facts of life, of basic sustenance. Most of us end in the dreaded race of debt and little reward. As we edge near a cashless society, the conditions are ripe for a shift in mentality, for the next generation.

This will help stop your child for asking you for money in the future, you saw it here first.

Notes

*(5% growth rate, per month, for 10 years Charges assumed in the calculator are 0.75% a year.)
Piggy bank - Inflation Rate in the United Kingdom averaged 2.46 percent from 1989 until 2020, so we must discount the capital amount by this rate.
50 x 12 x 10 = 6,000 (once inflation is applied), in real terms (- £147.60)
Cash ISA - The average rate now of cash ISAs is just 0.4 per cent, says the Bank of England. It has tumbled from 2.2 per cent ten years ago)
Investment ISA - According to global investment bank Goldman Sachs, 10-year stock market returns have averaged 9.2% over the past 140 years – we’ve gone for a very conservative 5% CGR).