|Four principles for teaching kids about money
Friday, June 03, 2011
I think all of us would agree that money (making it and spending
it) is a very big part of our lives, even if it isn’t money
that is our primary motivator in life. Most of the fun stuff
(golf, vacations, and children’s activites, sporting fun to
name a few), however, requires it. That’s a reality we can’t
ignore. Money plays a central role in our lives, yet there are
very few institutions teaching young people about money management.
Young people all make money, and they certainly know how to
spend it. But managing it is a different story.
What usually happens is that everybody learns the hard way.
By making mistakes, getting in credit card trouble, having to
go to the folks for a “Mommy/Daddy loan,” or going back home
for a year or two while we get our affairs in order. That’s
the hard way to learn financial discipline.
As parents, we can help our children avoid some of the hard
knocks of the financial world. Here’s how.
1. Start early. Give a small allowance and make them earn it.
This can start at about age 7 or 8 and continue until they leave
home. They can clean their room, make their lunch for school,
and help with lawn work to name a few simple chores. Later they
can help with meal preparation and cleanup. All skills they
will need when they move out.
2. Start a savings plan. When your kids are about 15 to 17,
they will need to start some real savings plan, because a car
and post-secondary education all cost money too. Parents can
“help” with cars or school, but young adults need to contribute
too so they have some “skin in the game.” A 50/50 split is a
3. Start investing. When you children are over 18 and working,
and perhaps have more money than they need to live and study,
it’s time to learn about investments. Introduce them to your
financial advisor so he or she can help teach them slowly. Some
of my clients give their kids $1,000 to start the plan; others
will cover a loss if necessary. Start with $50 a month while
The point of the exercise is to teach your kids early about
various investments (GICs, money market funds, bonds, equities,
mutual funds, and stocks), so they learn some basic advantages
and disadvantages of each. Then, when they start to make and
invest some real money, they are starting with some knowledge
base, which gives them a better chance of success.
4. Don’t spend more than you make. This is the most important
principle you can teach your kids. Too many people are burdened
with debt because they want a lifestyle they can’t afford. There
are only two times you should spend more than you make: First,
when you are starting out and buying big ticket (and appreciating)
assets like a home. The other is when you retire and start depleting
some of your nest egg. (A third might be when you are temporarily
between jobs or moving from one career to another.)
Invest well and teach your children about money basics. Once
learned, it’s a skill that will help them all their lives.
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The foregoing is for general information purposes only and is the
opinion of the writer. This information is not intended to provide
specific personalized advice including, without limitation,
investment, financial, legal, accounting or tax advice. However,
please call the author to discuss your particular circumstances.