Making sure your kids get a great financial education can go a long way to helping them become successful as an adult. With a bit of luck, it could even make your kids rich.
All parents are responsible for helping their kids learn the ways of the world. But while most of us are pretty good at imparting our wisdom on things like how to ride a bike, table manners and reading and writing, we often struggle when it comes to the important subject of teaching kids about money.
Don’t ignore it. Here are four ways to ensure your kids grow up with great money habits which gives them the best shot at becoming rich.
Provide pocket money
While it might seem counter intuitive, pocket money is actually a great way to teach your kids important financial skills. But always make sure there are strings attached.
Concepts like budgeting, planning and goal setting can all be introduced using their weekly allowance (make it monthly pocket money for teenagers so they budget for a longer period). And if you connect the money to chores, or jobs they have to perform, they’ll very quickly work out the link between hard work and financial rewards.
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Just try not to muddy the message by showering kids with gifts or additional payments with no rhyme or reason. And try not to get into a situation where they expect to be paid for any work they do around the house. There are “family jobs” which are done for free as being part of the family and there are pocket money jobs which are extras which help you.
Be firm, fair and get involved. Talk about what they want to use their money for and then help them get there.
Offer to set a part of their pocket money aside in a savings account each week. Or buy them a piggy bank, to save for a significant purchase they want to make.
The big benefit of doing this with a formal bank account is teaching the value of compound interest. A lesson they’ll carry with them forever.
Helping them to start a business like a lemonade stand or a babysitting or lawn mowing service over the summer will give them a huge advantage. They’ll start to appreciate how economics, customer service and business works.
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We have a young neighbour who puts out and brings in the rubbish bins for 10 houses in the street. He charges $5 a week, has been doing it since Year 5 and is just about to finish high school. That’s a tidy sum he’s earned over the years, which I hope he’s put to good use.
The kids will have to balance income and expenses, deal with customers and handle any complaints that might arise. I guarantee they’ll be better for it.
If they display a keen interest in the business side of things, support them. They could be the next Zuckerberg or Branson.
Teach the value of hard work
A part-time job is an essential part of growing up.
It teaches kids about responsibility, honouring commitments and the value of money.
Yes, they have a lot on their plate as they hit late high school. Their study and social commitments start to pick up, but they still have to learn about balance.
All our kids started working at McDonalds as soon as they were old enough. We reckon that was crucial in developing the work ethic they have today.
I understand that it’s tough out there for young kids looking for part time and casual work these days. The lessons here are commitment, persistence and overcoming hurdles. If they keep looking and finessing their plan, they should eventually be rewarded a job.
It’s never too early to start teaching your kids about investing.
With time on their side, kids are in a great position to benefit from the magic of compounding returns.
Start with explaining how shares work with practical examples.
For instance, if they’re drinking a soft drink or come with you in the bank or supermarket, explain that it’s possible to buy shares in the business that runs the company.
As they get older, why not suggest they participate in the ASX fantasy share market game? They can even compete against you to fuel a bit of family rivalry.
Armed with a great financial education around saving, working and investing, your kids will be in the best possible position to succeed financially when they grow up. It might even make your kids rich.