By: Austin Colby, CFP®, MBA
Here are three quick ways to help teach your children the value of money:
1. Working hard equals earning money.
One potential problem is that children never grasp the concept that you have to earn money, and instead just rely on others to provide it to them. Set tasks for young children to do which earns them a paycheck. The older they get, the more formal the job can be until they are working regularly outside of the house by the time they are in high school. This will teach time management skills as well as show them how working equals money.
2. Give. Save. Spend.
Start with those three categories as soon as your children start earning money. Pick a number that they learn to share, a number they learn to set aside for future spending, and the balance can be used to fund immediate lifestyle needs and wants. Obviously, for an 8-year old, the last number can be extremely small as the family covers 98% of lifestyle expenses. For a 16-year old, that number gets bigger. By starting them off with a G.S.S. plan it will make it much easier for them to develop healthy saving and spending plans as they add more responsibilities and more income.
3. Get your money working for your future.
The sooner you start investing, the more time you will have money working for you via the beautiful mathematical concept called compounding interest. I have sprinkled in a few lessons to my children about compounding interest and even at ages 8, 9, and 10 they can be fascinated by its powers. If the children are diligently saving, teaching them to shift some saving dollars into long-term investing dollars will open their eyes to the possibilities of getting their money working for them.
Kids are smart. In my opinion, they are much smarter than we often give them credit for. I am not an expert in parenting; I just have a lot of experience. The better the financial foundation we help them lay, the more solid their future financial homes will be.
Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.