Friday, September 1, 2017
7 Things to Teach Your Children About Money
Parenting is said to be one of the toughest jobs there is. I disagree. Don’t get me wrong, I think parenting is extremely tough, I just don’t think it’s a job. I think being a good parent is a goal you should set for yourself. Being the best parent you can be is the end game and it definitely isn’t easy. I look back at my Mom and Dad and sometimes I wonder how they did it. Living on a very tight budget and raising two loud mouth kids who had a knack for getting into trouble makes me wonder how I made it out alive. They must really love me. One thing that parents must teach their kids about is money. Our education system is free and sadly you get what you pay for. School teaches kids how to read, write and add 2 numbers together. Unfortunately, it doesn’t teach our youth the perils of debt, the benefits of savings and how a chequing account works. That’s where mom and dad have to step up. Teaching your children the fundamentals of personal finance can be the difference between a successful life and a debt-ridden nightmare. In this post, I will explain the 7 things you must teach your children at an early age when it comes to personal finance.
1) The Perils and Benefits of Greed
Greed is one of the 7 deadly sins. Gordon Gecko in the movie “Wall Street” said, “Greed is Good.” Well, which is it? It is actually a little bit of both. You have to teach your children that greed when it comes to money is a terrible vice. They have to know that enriching yourself by hurting others is bad and should never be tolerated. At the same time, they have to know their worth. If knowing your worth means claiming what’s yours and defending it then so be it. Often times the greed of others must be combated with personal strength which weak individuals will perceive as greed on your part. Your children should never take what isn’t theirs but they need to know that they matter, and no one should belittle their worth. Often times others will perceive you as being greedy when you are just trying to better your life. Teach your children the difference.
2) Budgeting
You had to know I would mention this one, but yes budgeting is very important. Monthly cash flow depends on it. If they stay within budget as a youth they are more likely not to incur debt as an adult. This is vital as the burdens of debt can linger for years. Budgeting helps them understand that money is finite and in turn, they learn the value of money. When the money is gone, it’s time to move on. They need to understand that spending more than you earn is very, very detrimental. Which brings me to…..
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3) Debt
One thing I didn’t fully understand as a teenager was the consequences of debt. This proved to be very costly as I ended up acquiring a lot of it at an early age. I knew I had to pay it back, but I didn’t understand what it would take to do so. Small lessons on debt and interest payments as a child will show them how damaging debt can be. This can be done easily by making a proposition to them for something they desperately want. If it costs $100 for a video game and they cannot afford it, buy it for them on the promise your child will pay you back in 6 payments of $25. They will be upset that you are making a profit off them, but it will show them the lesson of saving for something they want instead of incurring debt. That leads me to this next point….
4) Saving
Your children must know how to save money even if that means taking some of their money when they first start making it. Putting that money into a savings account instead of them blowing it on candy will be invaluable. Sound financial plans consist of positive monthly cash flow, not accumulating debt and consistent savings. When you save money on the regular, incurring debt will be very tough to do. It also teaches them the importance of patience. They will learn to save up for large purchases and therefore delay gratification. Learning patience at a young age is huge as it will be needed to save for the bigger goals in life like owning a home and retirement. Some people never learn how to save, don’t let your children be one of them.
5) Needs versus Wants
Again this concept is even lost on many adults. Many people think they need monthly vacations and weekly shopping sprees. It is imperative to teach your children at an early age that needs are very different from wants. The ability to prioritize and differentiate the two will lead your child to be a savvy, productive adult. Learning this lesson also promotes hard work as children will learn that in order to get their wants they will have to bust their butt. The last thing you want is to hear your child isn’t paying their rent in university, yet has a closet full of designer clothes.
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6) Taxes
The concept of taxes can be confusing even to grown-ups. Children should understand that they will have to pay taxes and you should even strive to teach them what the taxes are being used for. This will serve to reinforce the “nothing is free” speech you should have with them. This will also help to reinforce the “work hard for what you want” speech as well. Hopefully, if your children know they will be paying a sizable portion of their money in taxes in the future, they will strive to find a job that pays more money. You can teach your kids the taxes lesson by penalizing their allowance if chores are late. Drilling it into them at an early age will ensure there are no surprises when that first nasty pay cheque comes.
7) Interest
Much like children knowing how taxes can work against their take-home pay, children also need to know that their savings will be rewarded with interest. This will encourage them to save more and in turn breed, a sense of excitement as their money grows. One way to teach them the value of interest is to reward them with some of your money as they save theirs. Like the lesson with debt, (charging your child more to get a gift before they have saved for it on their own), add a dollar of your own for every 4 dollars they save. They will be ecstatic and you will watch the trait of self-denial ensue. Rewarding good behavior is parenting 101.
It comes as no surprise that many children follow in their parents’ footsteps. Frugal parents often breed frugal children. Careless parents’ often create careless children. You must remember that children operate through learned behavior and practicing good money habits will prepare them for life as an adult. Good money habits include patience, practicality, frugality, reason, and forethought. Sadly our school system hasn’t taken the lead in this area so it is incumbent on us to raise our children right. Teach them the values that will enable them to succeed. Doing so might help avoid costly errors that could haunt them for a long time.
“Don’t worry that children never listen to you; worry that they are always watching you.” – Robert Fulghum
Email – joe@budgetboss.ca
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