It’s never too early to start teaching your kids the right and wrong ways to manage money. When I was a kid, my parents afforded me a small allowance that grew each year, granted there were associated chores that had to be finished in order to receive my allowance. These days, I hear more and more stories about parents that hand out money like it does grow on trees. How do you think these kids will fend when they grow up and are forced to manage their finances with the idea that money isn’t earned? Or that money doesn’t have to be saved? It’s important to instill knowledge and properly prepare your children early on in life in order to lead them down the path of financial success. Let’s discuss the major ways in which you can influence your child – even at a very young age – to properly manage money.
The first tip isn’t what about your children should do, it’s about what YOU should. How will your children ever learn the do’s and don’ts of proper money management if you as a parent don’t understand them? Lesson #1 is being a positive and influential money role model for your children. Take advantage of everyday activities to talk and teach your kids about what you’re doing with your money and why it’s important. Think of a trip to the grocery store as an opportunity to explain price comparison and value. Opening bills can be a great opportunity to talk about borrowing, earning, sharing and debt. Use every opportunity possible to spark up conversations that your kids will understand and learn from.
The second tip to cover is teaching your kids about earning their money. Remember how I said I used to have an allowance? Well I still do – it’s call an income. Looking back, I never realized at the time how valuable my chores and allowance were at showing me that I had to work for my money. But, those values stuck, and I’ve always felt a strong passion for earning what I have. Start an allowance early and build from there. Create a budget together – list all of their expenses and how they’re going to afford them. Opening a checking or savings account can teach them about fees, account maintenance, and even interest. If you’re struggling with your kids going to school and unable to work, make sure you teach them about loans and debt.
I know, I know, trying to teach a five year old about a retirement plan is sure to be a failure, so start small. Teach them about savings first. Do they have a new toy in mind that they’d like to buy? Make them save up to buy it and teach them the value of saving and spending. Once they get a little older, start explaining the importance of investments and how retirement works. Teach them the basics of investing and start with small ventures like broad-based index funds and IRAs. Have them do some research and find out about the different ratings and performance levels of specific investments. Giving them a solid knowledge foundation to work from is better than throwing them to the wolves when they’re forced to start saving for the future.
Finally, what shouldn’t you do when it comes to teaching your kids about money? The best tip I’ve ever heard is to have patience – you know how kids can be, don’t force them to take your advice. As we all know, sometimes learning from our mistakes can be the best form of learning. With that said, don’t be a lifeline for them to always fall back on. They’ll never learn from their mistakes if you constantly help them in recovering. Instead, help them strategize how to get out of their mistakes and what to do in the future. It’s important for your children to make their own decisions, especially when it comes to their finances. Your job isn’t to set goals for them, it’s to give them the knowledge, education and preparation necessary for them to be able to make their own calculated goals and assessments – something I’ll always value that my folks gave me.