Children whose families struggle to pay their bills and save money are likely to develop poor financial habits when they grow up.
A new research released by the Money Advice Service in the UK last week suggests how parents’ past and present financial behaviour can greatly affect a young adult’s money management habits.
The study found that the more a household struggles to set aside money for emergencies and settle their dues, the more likely a young person will struggle with his own finances.
Among the more than 1,000 15 to 17-year-olds surveyed for the study, 68 per cent of those from families who are able to save for emergencies tend to set aside money for themselves.
However, among the young adults whose families struggle with emergency costs, only 47 per cent have developed the saving habit.
The study also found that majority (53 per cent) of young adults from families who can pay their bills or loans find it easy to live within their means. The figure drops to 29 per cent among young people whose families can’t pay.
Caroline Rookes, CEO of the Money Advice, says that a person’s money habits are formed at a young age and once formed it will be extremely difficult to shift.
“I am struck by how heavily a young person’s money management habits are influenced by their family’s past and present financial behaviour. This is our first glimpse of how these young people are coping with the transition into adulthood — we see a generation coming of age through a period of austerity, a group that’s witnessing rapid financial change and learning how to cope and plan,” said Rookes in a statement.
Several families in the UAE struggled financially in the last few years.  Some people absconded from their jobs, leading behind a pile of debt. For parents who encountered great financial difficulties during the recession, it is not too late to rectify their mistakes and set a good example.
“During the recession, people had to suffer because they spent more than they had. There was no concept of money management because Dubai was in a financial boom mode. However, the recession quickly decimated that phase and left many families with financial difficulties which could have been faced with much ease if they had managed their finds responsibly,” recalls Ashok Sardana, managing director at Continental Group.
Although some households did not do well financially in the recent past, it does not mean the UAE is expecting a young generation with poor money habits. Steve Gregory, managing partner at Holborn Assets, points out that the UK and UAE demographics are “hugely different”.
The UK is home to more than 2 million children living with single parents, the majority with the mothers who tend to have less income than the fathers. In the UAE, among expatriate families, parents are mainly married with children and only a few are single parents.
“I believe that children of higher paid, more highly educated parents are more likely to follow the footsteps of their parents and follow higher education and make better career choices and higher incomes as a result. This in itself does not mean they will be extravagantly wasteful or that they will gift to charities and save or invest most of their money,” says Gregory.
“I suspect every family has members who do well and others who do less well. Some are ambitious, some are risk takers, some are reserved and cautious and some do what their parents did while other siblings do the opposite,” he adds.
Nonetheless, parents in the UAE still need to lead by example.
“When children are growing up, their immediate role models are the people who they interact with the most on a daily basis — their parents. Adults can proactively show the younger ones how they successfully manage funds or when a mismanagement occurs, how they rectify the issue,” says Sardana.
A great way to steer children towards good money behaviour is by providing them with an allowance and putting them up to small challenges of saving a portion, say, 5 or 10 per cent, of their pocket money every month.
Sardana says this allows the child to experience what it’s like to manage money even at a young age and provides them a sense of being financially responsible.
“Also, from time to time, parents must practice tough love by not giving into extremely expensive demands. This is where the exercise of saving from allowance can be fruitful and the child can learn to have patience with growing their wealth,” he says.
Natalie Storey, financial consultant at Acuma says an effective trick is to set up a savings account while the child is still small and to get them to put a part of their pocket money in there.
“You could also contribute an amount into their saving account, too and not let them get access to [until they are] 18 or 21. It’s important to teach them that you need to save and structure your money from an early age.” 
Since children learn a lot from their mother and father, it is important that parents set a good example by making sure they save for their own future. Ideally, parents should set up a retirement plan for themselves and an education plan for their children.