“Mama, don’t let your babies grow up to be cowboys, …” Bring up your babies to be homeowners! Now that the tune is stuck in your head, let’s talk about teaching kids about money and how to build wealth. It’s a critical life lesson that should be taught early on in their lives. Too bad that it isn’t taught in school or college. That means it’s up to us as parents to teach our kids how to take control of their financial futures.
When it comes to teaching kids about money and how to build wealth, start here:
- Practice Self-Control
Put one of your kid’s favorite treats to eat on the table, a Rice Krispies treat, a few pieces of their favorite chocolate or candy, for example. Have them sit down where they can see it, touch it, smell it. Tell them they may choose to eat it now or wait 15 minutes while you go work on the laundry or make an important phone call. Tell them that if they choose to wait while you are gone, when you return you will give them another treat or more of their favorite candy.
The sooner a person learns the difference between instant gratification and delayed gratification, the sooner they’ll find keeping their finances in order easier to do. This exercise teaches kids the difference. They are practicing self-discipline to save for something bigger, something they really want later.
Life gives many opportunities to put this important lesson into practice. Watch for them!
- Manage Money
Kids need some sort of “an income” in order to learn this lesson. Chores should be completed without payment because that’s how a family works as a team.
Give your kids opportunities to earn money. Set a price for a special paid project. If more than one kid wants to take on the paid project, do a reverse auction and give it to the lowest bidder.
When paid for completion of a special project, help your kids handle their income with the 80-10-10 rule: 10% goes into savings (a non-negotiable emergency fund), 10% is donated (church tithe, for example), 80% can be spent (or saved) as they wish.
This exercise actually teaches two lessons that many adults find difficult to manage: the importance of saving and giving back.
By the way, when a person gets into the habit of saving money and treating their savings as a non-negotiable monthly “expense,” they’ll have retirement money, vacation money and even money for a home down payment before they know it!
- Read a Book
There are a lot of books geared towards teaching kids about money and how to build wealth. This is a great reading list to arm your kids with personal finance knowledge: Nine of the Best Money Books for Kids and Teens.
Rich Dad Poor Dad is a great read for barely-teens on up. No matter how old you are, if you haven’t read it yet, get crackin’! It teaches powerful lessons on the difference between liabilities and assets, the importance of minimizing your expenses and introduces the idea of passive income.
- Live Within Your Means
Grandparents, church and Rich Dad Poor Dad teach the importance of living within your means. Unfortunately, today’s society does not. People are encouraged to get whatever they want, because after all, they’re worth it, and they deserve it. Learn more about credit here: Understanding Credit Card Interest
Learning to live within your means can be taught to kids every day. It involves delayed gratification, discipline and being told “no.” You’ll need to be on your toes to watch for these teachable moments.
- Invest In Passive Income
Think gumball machine or vending machine here. Then, be prepared to practice patience. It will take time for your kids to mature to the point of understanding passive income.
Show your kids how to buy a gumball machine with say $100 of their own. Suggest a busy store to place their gumball machine in. Now, research together what it will cost to purchase gumballs for their machine. Once your kid guesses how many gumballs they think their machine could sell in a week, help them calculate a profit and loss projection. You’ll need to discuss how much time this passive income business will take and whether or not you will be in a position to purchase a second machine. What Constitutes Passive Income?
- Play Games
You should be teaching kids about money and building wealth as early as possible. Many of them are more easily taught and caught when they are older. No matter when you start teaching kids about money and how to build wealth, make it fun. Play games like Cashflow for Kids or Monopoly. Help them learn about business with a lemonade stand, lawn job, babysitting, snow removal, poop scooping or dog walking business. Any one of these businesses can teach kids (and adults!) planning, investing, marketing and executing.
Understanding how money works is the first step toward making money work for you. Kids don’t need a fancy degree or special background to learn how to manage money, nor do you in order to teach them.
Teaching kids about money and how to build wealth while they are very young will help them learn to manage money before they go out into the real world. They will know how to:
- Set financial goals
- Keep their credit clean. Credit worthiness decides your mortgage rate, homeowners insurance rate, car insurance rate, etc. Are you a good risk for credit cards, auto loans and mortgages?
- Live within their means
- Save for and create their future
- Prepare for homeownership
No matter what the age of your kids, start them on the right path financially today. If you’d like more in depth resources on managing money, enjoy the following great reads:
- 8 Tips For Young Investors
- 10 Ways to Teach Your Kids About Finance
- Teach Your Children Well
- 6 Tips From Jack Bogle on Teaching Your Kids How to Invest
Charles D’Alessandro, your Brooklyn real estate agent with Fillmore Real Estate | 718-253-9600 ext. 206 | [email protected]