The world is awash with financial turmoil these days, and it looks like things could easily stay that way for a very, very long time. That’s why it’s so important to begin teaching your children the importance of saving and investing right now.
Kids face a multitude of financial temptations as they grow up in the modern world. There are all kinds of gadgets to spend money on, and of course there’s always music, junk food and gasoline for “cruising”. The spending and saving habits they acquire during their formative years will probably stay with them for the rest of their lives, therefore it’s incumbent upon parents to make sure their kids learn the importance of proper financial management before they reach adulthood.
Here are a few tips for helping your children learn about earning, saving and investing money:
1 – At least some of your children’s money needs to be earned. Like most parents, you probably take pride in the fact that you can provide well for your children and can afford to let them have pretty much anything they want. But it’s imperative that they learn the true value of a dollar, and the best way for them to do that is to earn some of them by the “sweat” of their own brows.
A good way to begin is by tying the amount and frequency of their allowances to the timely and successful completion of chores. Smaller children can help keep things picked up off the floor and assist with routine household chores such as loading dirty dishes into the dishwasher. As they grow older you can assign them tasks with more responsibility such as washing the windows, painting the shed and mowing the grass.
I’m not saying that a child should be forced to “earn” every penny you provide for him/her, but it’s a good idea to force them to earn at least a part of their “keep”. Nothing teaches the true value of money like having to earn it!
2 – Get your small children a piggy bank and teach them to save a certain percentage of their allowances each week. The actual amount isn’t important at this stage, but forming the habit of regular saving is. Whether it be 5%, 10% or more, get them started early and they’ll likely keep it up for the rest of their lives.
As they grow older, take your kids to your bank and help them open a savings account. Help them draw up a budget that includes saving a set percentage of their “income” whether it be from allowances, part time jobs, the sale of their unwanted items in a yard sale or even “birthday money”.
3 – As they enter high school, begin teaching your kids the difference between saving and investing, and why it’s important to do both. Saving is setting aside money that can be quickly tapped in an emergency or dedicated to a specific future expenditure. On the other hand, money that’s invested should be dedicated for long-term growth instead of short term goals.
The high school years are also the best time to teach your kids about risk vs. reward and rates of return in regards to saving and investing. Understanding these terms and the concepts they represent are crucial to your children’s financial success as they enter and progress through adulthood.
In conclusion, times are tough right now and things could well get even worse as time goes on. That’s why it’s so important to give your kids a solid foundation of knowledge and good habits when it comes to earning, saving and investing money for their future.
About the author: Emily Johanssen is a Certified Financial Planner who enjoys helping families achieve their financial goals.
Credits: Photo courtesy of Nelson Kwok.