I remember my father and mother giving me money advice from the time I was knee-high to a grasshopper. They were simple but compelling lessons. 1) Live within your means. 2) Plan for your future, and 3) Start today. Here are 10 lessons not to overlook when teaching kids about managing money.
Lesson 1: Children are never too young to learn about good money habits
Parents needn’t wait until their kids are in their teens; they should start teaching their kids about the importance of managing money from as early as preschool age.
Teaching kids sound financial habits at an early age gives all kids the opportunity to be successful when they are an adult, just ask Warren Buffet, one of the most famous billionaires in the world. Warren Buffet was learning about the right money habits from his father at just 6 years old. At this early age, he started his first business. He bought a six-pack of Coke for 25 cents and sold the cans for 5 cents a piece. He also sold magazines and gum door to door.
Lesson 2: How to set a budget
The concept of living within your means is one of the most basic lessons of personal finance but it’s something that is difficult for even for adults to master. Teaching your children what a budget is and why it’s important to have one is the first place to start in the money discussion.
Lesson 3: The sooner you save, the faster your money can grow from compound interest
At around 11 years old, you can shift from the idea of saving for short-term goals to long-term goals. Now is a good time to introduce the concept of compound interest, when you earn interest both on your savings as well as on past interest from your saving.
Lesson 4: Today’s debt is tomorrow’s slavery
Help your kids to limit their debt obligations whilst they are younger, so that they have more control of their life when they are older. Children look for immediate gratification, and often delaying something they really want is very difficult. Unfortunately, this leads a lot of young people into a credit trap, because they can buy things with credit cards, with store cards, but today’s debt is robbing them of tomorrow’s lifestyle. Kids at this age need to learn that if they really want something, they should wait and save to buy it. Kids should learn that going into a store doesn’t always mean you will purchase something for them. –
Lesson 5: We are the culmination of the decisions we make
Teach kids to be responsible. We are all who and where we are today because of all the decisions we have chosen to make, and all the decisions we have chosen not to make. Don’t let your kids play the blame game. Ensure they take responsibility for being the master of their own destiny.
Lesson 6: Incentivise your children to save
Teaching your children to manage within their means and save up for things that they want stands them in good stead early in life. Encourage them to set aside a small amount of their pocket money as savings and reward them for being consistent in their saving habits. Dollar for dollar matching for their savings could be one way to incentivise them to save from a young age. Whatever you do, make it fun.
Lesson 7: People who do well in life are not just necessarily lucky
Sometimes we get lucky with a windfall, which gives us a great start, but people who are not good with money can very quickly lose it all. Kids need to learn how to appreciate what they have got, and that hard work and smart decisions will get them ahead.
Letting your children believe that financial success has everything to do with luck can encourage kids to become gamblers. They grow up feeling that hard work is only going to get them so far, then luck takes over. It is not long before they are ‘trying their luck’ at the pokies.
Lesson 8: Spend less than you earn and invest the rest
Kids think in uncomplicated ways. Teach them that if they spend more than they earn, they’re always going to owe other people money. Therefore, they should be saving at least 10% of their pocket money right from the beginning. Build that habit early in the piece, then investing, and when they have got enough, they can reinvest. And then eventually, they will be able to appreciate and enjoy life
Lesson 9: The importance of leverage
Albert Einstein said that leverage is one of the most powerful forces in the universe. Leverage is taking advantage of time and compounding. Think about if you would have bought one property 20 or 30 years ago, how much better off you’d be today. Then just using the benefits of timing, compound and leverage how much money or value you would have today.
So the message needed for kids is to start saving and investing early in life, because that’s much more likely to secure their financial future.
Lesson 10: The importance of giving
While earning, saving and spending are important, so is helping out those less fortunate. Explain to your kids why you give money to charity and encourage them to give some of their allowance or other earnings to the less fortunate. Whether it is raising money for sick animals, assisting Meals on Wheels, or other charitable causes, help kids understand that giving of their time is an important way to help others when they don’t have a lot of money to donate.