From Ash Cash, personal finance expert, speaker and bestselling author.*
It is said that by the third generation all family wealth is depleted and the cycle of building a sustainable family foundation starts over. For many of us (including myself), we may be the first or second generation that is building a good financial foundation for our family so it’s imperative that we learn the tips and tricks necessary to keep our legacy building. In order to break this cycle, we MUST begin to do better and teach our kids how to manage and grow money aka financial empowerment.
This starts with financial literacy and for some, this phrase sounds like this big scary concept that is reserved for accountants and finance majors, but the truth of the matter is that financial literacy is simply managing your money responsibly by telling your money what to do. It doesn’t matter if you have $1, $1,000, or $1,000,000, it is important that we control where our money goes and teach our kids to do the same.
Here are my top 10 ways parents (or those who care for young ones) should do to teach kids about money:
1. Set the Example
The days of “Do what I say and not what I do” are over and done with. Your kids are watching your every move, so it’s impossible to help them become financially savvy if you are not practicing what you preach. If you’re always using credit cards every time you go out to dinner or to the grocery store, they will notice. If you are always complaining about money and bills, they will notice, and if you keep spending money frivolously then they will notice. Create a money system where you are budgeting your money accordingly and allowing your kids to understand what is being paid for and why. Have discipline in your finances and demonstrate that discipline at all times.
2. Create a Value System
Don't just give them money! Teach your kid the value of a dollar by making them work. Pay for chores around the house, babysitting, getting good grades, taking out the garbage, etc. This will teach them a sense of responsibility and associate money with hard work. Our kids must understand that nothing is just given to them, if they want it, they have to put in the hours.
3. Teach Your Kids How to Grow Money
Help your kids make a list of money makers (stocks, bonds, mutual funds, owning a business, etc.) and money losers (sneakers, high priced clothes, eating out all the time, etc.). Give them a sense of why they shouldn’t spend all of their money on money losers, but instead focus on how to make their money work for them. You should also teach your child to make a pros/cons list before spending money on an expensive item.
4. Teach Your Kids About the Money Cycle
Money is not supposed to just be hoarded. In order for money to grow and have value it MUST circulate. Discuss with your kids the advantages and disadvantages of saving money. Yes, it’s important to be disciplined to save but your kids must also learn about spending responsibly and giving. Teach them how donating money can open the door to abundance.
5. Don’t Buy Anything For Your Kids
In order for your kids to understand how money comes and goes, make sure that all purchases that are made for your kids are done by your kids. Instead of charging things to your debit or credit card, pay with cash and give the cash to your kid to purchase their items. Allow them to see how fast $100 can be spent. At the end of each purchase have them reflect on their experience.
6. Teach Your Kids about Opportunity Cost
Ask your kids to think about something they recently bought that they really wanted. What were their feelings about the item before they bought it, and their feelings two weeks later? Was it worth the money? Show them that their decisions matter and help them realize that each decision has a consequence. “If you buy this video game, then you won’t have the money to buy those sneakers.”
7. Teach Your Kids Money Discipline
Instead of buying big ticket items for your child, allow them to breakdown big purchases into smaller amounts and help them create a savings plan to get their item. This may also be a good opportunity to teach them about credit. Maybe lend them the money, but make them pay you back by doing chores. Also discuss an emergency fund and the reasons it is important.
8. Teach Your Kids About Hidden Cost
Ask your kids...does a free cat or dog come with hidden expenses? If so, what are they? Make them understand that just because something is free or low-cost doesn’t make it a good deal. They must evaluate the total cost of something before making a financial commitment.
9. Show the Importance of Money Protection
Teaching your kids how to obtain and manage money is important, but also how to protect and retain it is equally important. Talk to your kids about the importance of insurance and how it can be used to build wealth and maintain the family’s lifestyle in the event of an unexpected emergency.
10. Teach Your Kids About Things Money Can't Buy
Discuss being rich in compassion, understanding, empathy, friends, knowledge... How does our character and reputation help us financially in the long-term? These are all important lessons that they must learn.
*The opinions/views expressed by Ash Cash are not considered opinions/views of BMTX, Inc., a wholly owned subsidiary of BM Technologies, Inc. BMTX is not a financial advisor and individuals are urged to obtain and consult their own financial advisors.