Majority of US adults say school left them unprepared to handle money
Personal finance expert Rachel Cruze discusses how parents can teach their children about saving early on.
Father’s Day is a prime time to reflect on the valuable lessons we’ve learned from our dads and think about the crucial wisdom we want to pass on to our own kids.
My father died almost 35 years ago, and through his actions he taught me what you should and shouldn’t do with your money.
Teaching your children smart financial habits early in life can set them up for a future of success. Here are five concepts I preached to my three children since they were old enough to understand them.
Teaching your children smart financial habits early in life can set them up for a future of success. (iStock)
You Value What You Earn, Not What You Are Given
One parental choice you will have to make with your children is whether or not they get an allowance. In my view the fundamental choice is not about the allowance itself, but whether or not you GIVE your children an allowance or they EARN it.
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When kids earn something through their own efforts, they learn the value of hard work. It’s not just about the money they receive but about the effort and dedication they put into achieving it. This could be through chores, part-time jobs or even entrepreneurial endeavors like lemonade stands. They see firsthand how effort translates into earnings and this in turn translates into the behaviors to become an "earner" in life.
Teach Your Kids How to Lose Money
Wait, did you say lose money? Yes, lose money. You see, no matter what courses they take in high school or college around personal finance, there is no greater teacher for all of us in life on what NOT to do with our money until we experience losing some money.
Whether you set them up with an account at Robinhood, Acorns or even Coinbase, get them started saving into some type of investment and sit down quarterly with them to track it and teach them how their investment is performing.
Have them pick one stock of their favorite company and even if they lose money, they win in the long-term gaining interest on how investments work and how to make good investment decisions.
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The Snowball Effect of Saving Early
While teaching your kids about saving, investing, spending and donating are important, the earlier you introduce your kids to the concept of compounding interest the better.
Explain how investing money and earning interest on both the initial amount and the accumulated interest can significantly grow their wealth over time. Use simple examples and charts to show how savings can multiply over the years, so they get excited about saving 20% of their income.
You can also show them the corollary of what it looks like to pay interest on a mortgage when the compounding of interest is on the other side of the table.
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Spending: The Acid Test
Teach your kids that money doesn’t grow on trees and social media companies want to target you with spending advertising to take money off your trees.
It’s important to teach your kids about a valuable concept called the acid test. Essentially, before you make any purchase in life ask yourself three important questions:
- Do I want it?
- Do I need it?
- Can I afford it?
If the answer to any one of these questions is no, then you shouldn’t spend the money.
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It’s one of the major driving issues of inflation and high credit card debt today. People just can’t stop spending money.
The Importance of Giving Back
Instill the value of generosity in your kids. Teach them the importance of helping others by donating to charity or volunteering their time. Explain that giving back not only supports those in need but also enriches their own lives.
Since the wealth gap in America continues to widen, we’ve got to really educate our children about being able to give back to your church/synagogue, your community and our country.
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My Father
Father’s Day is the perfect opportunity to pass on valuable money lessons to your kids. I would give all my money today to just be able to have dinner with my dad. He taught me the value of hard work, education and planning for the future.
These lessons are gifts that will benefit your kids for a lifetime, ensuring they have the tools they need to navigate their financial journey with confidence and wisdom for the rest of their lives.
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