As parents, we continually struggle to pass knowledge on to our children. Unfortunately, sometimes the financial knowledge we want to share is either left off the list or lost in translation. Whether your child is five or twenty-five, there are lessons you can teach around money to give them a strong financial start in the world.
I fondly remember one of my first lessons about money from my father. I had a savings account where I would deposit birthday money and various other funds acquired throughout the year. Back then, the savings and loan had passbooks for your account. You would bring your passbook to the bank every time you made a deposit, and the teller would print on your passbook the amount of your deposit plus the interest earned since your last visit. On one visit I realized I had earned $2. This was a lot of money for an eight year old kid in the 70’s. The first thing that came to my mind was to pull out the $2 and buy milkshakes for me and my dad. Although we both would have loved the milkshakes, he taught me the importance of savings, interest and letting the money grow for my future.
This lesson is one of many lessons my parents taught me about money. Through these lessons, I learned the importance and value of a dollar. As part of my role as a wealth manager, I am passionate about teaching my clients similar lessons and educating them about their finances. In order to help you pass on similar knowledge to your children, I’ve shared five financial tips on educating your kids about money.
- It is never too early to start
Just like saving for retirement, the earlier you start educating your children about money, the better off they will be. A great place to start is with early lessons around earning and spending. Show your children they can do a job and be rewarded by with their own money. Whether it is setting the kitchen table, emptying the dishwasher, feeding your pets or helping with laundry, if they earn a $1 for a week’s worth of work and they want to buy a toy that costs $5, they will understand it takes five weeks of work to buy that toy. Tasks like these will put into perspective how much things cost and the amount of work needed to afford something they want.
- Understand the Save, Share, Spend mentality
Children, just like adults, should learn the power of the Save, Share, Spend mentality. For every dollar earned, either through allowance, babysitting, or other jobs around the house, teach your children that the money earned can go to three important buckets. These three buckets should be about the amount you want to save for the future, the amount you want to share with others and the amount that is left over for you to spend. Learning this premise will show kids that it is just as important to save for the future and to share with others as it is to spend whatever makes its way into their pocket.
- Be smart about debt
There is an opportunity cost with every decision made around money. If you spend now, you have less to spend later. If you spend more than you have currently, you will incur debt. The hardship of taking on debt means, a portion of your future cash flow will now have to be used to pay off previous debt. This will leave you with less money to spend in the future. In addition, the amount you actually repay is the amount of the debt incurred plus interest charged on the money borrowed. Teach your kids to be patient and thoughtful around spending. It is better to save for future expenditures instead of jeopardizing your future income stream by going into debt.
- Teach goal setting and budgeting
Few people like creating a budget, much less sticking to one. To me, budgeting is like planning out your family activities for the week. Every week, my husband and I sit down and talk through what we have with work, school, kid’s activities and family time. How do we fit all the various time commitments into one week? We juggle and sacrifice. Budgeting is the same. You have a certain amount you can spend each month to achieve your goals, manage your lifestyle, save for your future and not go into debt. You can show your kids the process of making choices around money based on a budget and that you need to compromise and sacrifice along the way.
- Take away the taboo of talking about money
Money is a very taboo subject. People don’t want friends or family to know how much they make or what they spend it on. Change this trend by sharing information with your kids about your individual situation with regard to money. Show them your decision making process around your goals and budgeting. Include how you plan to save, share and spend your money. Let them help with priorities and the decisions you are making. If you share with them the mistakes you have made and the lessons you have learned, it will go a long way to helping them secure their financial future.
The financial tips my parents shared with me have made me into the individual I am today. Whether it is budgeting or planning for my next large purchase or saving for my kid’s education, now I am sharing these decisions with my children. This will help them understand the importance of budgeting, planning and being thoughtful about money. I hope one day, my children share these same lessons with their children and that the cycle of sharing and education continues.