Parents all over the world spend their lives trying to improve life for their children. Education, sports, culture and entertainment for kids are all priorities on which parents spend great amounts of money and energy. We want to help our kids to follow their dreams. But one thing we could emphasize more (at home and in school) is money savvy.
Most young people still unfortunately have to learn about the world of money the hard way. We make many costly mistakes, need help from time to time, and come to wisdom by trial and fire. As parents, we should show our kids some tough love and really start teaching them the true value of money from a young age. In an instant-credit society where demands and temptations to live on plastic are everywhere, this is a tall order.
Let's take a look at how we can help our offspring towards a secure future by teaching them five simple principles. Money is like water, it has a strong tendency to flow downstream if you let it; Stay out of debt if you truly want to be free. Don’t be a slave to the culture of paying down debt; Find the flow for your life, that unique spark which makes you want to get up in the morning; We don’t need a lot of money to invest.
One of the hardest things for a young person to learn is to take the approach of the tortoise, not the hare; and the good news is that there is such a thing as a money tree. Yes, the money tree is there for anyone who is willing to water it and let it grow. In this experience-based piece, we will see how we can plant seeds for our kids which might grow for generations. It’s the best gift we can give to our children.
5 Once You Spend It, It’s Gone Forever
In a world of revolving credit, this simple fact seems to get forgotten. Money that flows out, like water from a faucet, never comes back. And the small petty spending really adds up. Kids really want things right now, because they’ve grown up in an instant society. Smart parents can show a child how a new bike they want to buy means other lost opportunities.
Let them work it out on a spreadsheet how many lawns they have to mow or newspapers they have to deliver to buy a bike. Or be frank and explain how many hours mom has to work to earn the amount that the bike costs.
4 Avoid Debt
Take two glasses and a jug. Fill one glass and the jug with water. The full glass is debt. Now let the student try to empty the full glass into the other glass 10% at a time, but every time they pour 10% out into the other glass, you say ‘thanks for your payment’ and fill it up a little bit This is like the interest that keeps piling up on debt. It’s really hard to empty that glass, since it keeps filling up all the time, and with credit card debt, interest is calculated daily.
Clearly there is good debt and then there’s bad debt. Good debt is a small loan for a college education or a mortgage at a low interest rate. Bad debt is anything else, especially credit card debt, as we’ve seen in the water example. Use a credit card to build a credit record, but never build up credit card debt. Pay the balance off every month.
Another part of avoiding debt is to minimize the number of credit cards owned. Don’t ever have more than one credit card. Some of the big box stores have very alluring deals which reel in gullible consumers who end up paying down debt for many years. This is the slavery of the 21st century.
3 Find The Flow
One of the best ways to make money is a regular job. But young people don’t have to feel like they are selling their soul just to make ends meet. As parents, we have to find a way to let our kids try different things and find something which makes them forget that it’s lunch time or five o’clock. Something which engages them so much that they really immerse themselves in it.
This is what I call ‘Flow’. It’s that mysterious ‘pull’ which tells you: ‘This is what I want to do’. And this doesn’t fall into someone’s lap overnight. It takes a few tries in different areas to find your flow.
Summer jobs are a great way to get a feel for different areas and to open kids’ eyes to the realities of careers they might see only through rose-coloured glasses. Some informal experiences such as volunteering could also show which education is needed to really follow a dream path. There are very few fulfilling careers to be found which only require a high school diploma. Once you find your flow, most other aspects of life start clicking into place.
2 We Don’t Need Lot Of Money To Invest
Most people still believe that investing is only for the wealthy. In fact, investments, however small, can pay interest or dividends. With as little as $1,600 and a discount online brokerage account, one can start buying dividend-paying stocks and unit trusts such as REITs (Real Estate Investment Trusts). The key is to start small and keep adding to the investment over a long period of time to let it grow.
My parents used savings accounts and diligently set aside money every month, but they truly could have gained from receiving higher returns for their hard-earned money if these vehicles were available to them. Investing in this way has only become really accessible in the last decade, so it would serve us all to understand how to use them to our advantage. Young people have the luxury of time. If we can teach our kids to start investing early, their battle is half won.
1 The Money Tree
During the gold rush in the American west, people had one thing in mind - to get rich quickly. An interesting book titled Oakland "Athens of the Pacific" from 1897, contains a line which reads:
"Gold doesn't grow on trees in Alameda County. Don't come here with an idea that it does."
There's also a saying: “Money doesn’t grow on trees”. What this means is that money doesn’t appear from nowhere. But here's another truth: yes, there really is something which can grow money. It’s known as compound interest. But just like a tree, you have to water it regularly. How to do this? Simply set up the irrigation for your tree once (automatic monthly payment) and your tree will grow. Once you get your first pay cheque, set up a withdrawal to a savings account of $50 or even $20 and forget about it. And don’t touch it. It will grow if you just let it be. This regular payment to your money tree is a necessity with the same value as brushing our teeth.
My grandfather used this principle and this is why he was able to retire at a relatively young age and, although not wealthy at all, he enjoyed a comfortable retirement. Young kids are not able to grasp the concept of retirement yet, but for them, the motivation for their money tree could be to save for a trip to Europe or their first car.
As parents, our deepest wish is that our kids would be secure and have a good life, so our job is to show them how to build security in a sustainable way. If we start early, we can all raise money-savvy kids.