One of the most widely-known and respected minds in personal finance, Dave Ramsey, is quoted as saying, “Teaching kids about money is never just about money.”
As many parents could attest, teachable moments can, and often times do, present themselves at inopportune times. Nonetheless, delayed gratification, self-control and generosity are some of the values kids we can teach our kids as they’re learning about money. Although it can be difficult to talk to kids about a subject that can get pretty complex, use these simple principles to start the conversation:
Principle #1 – Explain the Benefit of Financial Discipline
Kids can be motivated to save in order to buy their new favorite toy or game. It requires discipline on their part to not spend the entire allowance. This is a great way to begin teaching kids the value of discipline. Small decisions to be disciplined in order to buy a new toy may encourage them to continue this habit as they get older, and the toys become more expensive.
Principle #2 – Start Giving & Saving 10%
Giving and saving can be a big challenge for a young kid. As adults, it’s our responsibility to teach and model generosity and selflessness to children. This teaches kids to have an open heart and an open hand to show love to others who are in need. As mentioned previously, saving toward a specific goal (toy, game etc.) can incentivize kids to begin saving. Use a simple online growth calculator to show them how much their small savings could increase over a short amount of time.
Principle #3 – Get Started Investing Early
Instead of dumping money into low-interest savings accounts or a piggy bank, this is a great opportunity for them to begin investing in longer-term assets. Let them buy stock in their favorite companies and use it to foster conversations.
Principle #4 – Leverage Time
Time is a very powerful tool that could provide exponential growth over the long-term. The more time you have, the greater the growth potential. For example, assuming a 7% return, a sixteen-year-old who saves $500 a month could have an account worth ~$2.5M at their 65th birthday. If the sixteen-year-old decided to wait 25 years to begin saving, they’d have to save $3,500 a month in order to achieve the same account value by age 65.
Principle #5 – Help them Set Financial Goals
When a child asks for money, take a second to understand why they’re asking and what they’d like to buy. Help them understand all the costs involved, what they might need to earn or save to get there, and what they might need to give up short-term to achieve their goal. Encourage them to work hard towards their goal – new bike, phone etc. – and really celebrate with them when they achieve their goal!
Kids learn best through watching their parents and through short lessons. They absorb more than we know, so keep it simple!
Lean into your kids by preparing them to become good stewards of their resources – we can help! Schedule your free review today by calling 817-865-1811.