We are becoming a generation that lives on debt. Our parents were not like that and I would really like for our children not to feel the harness of the mortgage, the car payments, and the credit card payments for all of their days.
So how can we teach our children to have a healthy relationship with money?
Money is earned
That is lesson number one for me. Nobody deserves to get free money. There is a direct correlation between your input and the money you receive.
Let them earn their pocket money by doing chores around the house. What they have to do and how much they can earn will depend on the age of the child.
They should never grow up with a sense of entitlement. It certainly does not help them in the long run.
Once you spend it, it is gone
So they need to learn to be extra sure that they really want what they are spending it on. I’ve found that once they have done the chores to earn the money, they become a little more reluctant to spend it on frivolous items. They start to learn and respect that money has a value.
Money can make more money
Kids are never too young to take on board most concepts and entrepreneurial and investment skills are no different.
I have seen kids take their money and put it in a savings account and watch their money grow through the application of interest and refuse to touch it until it hits a certain amount (better than a lot of adults actually!)
I have also seen children who have taken some of their allowance, bought stuff that they know other kids like and sold them to the other kids at a profit.
The feeling of awe and joy they get from creating new money is indescribable.
If you cannot afford it, you cannot buy it
Teach kids to operate on a strictly cash basis. They can only buy what they have enough money for. It teaches them to budget and spend wisely.
If you borrow money, you must pay it back with extra
“Mom, can I please borrow $20” is always met in my house with “Sure. I would like it back by the end of next week with 1% interest. For every day it is late after that, I will charge 2% interest”. At first my kids thought I was joking but they soon came to realise I was serious and now they think very carefully about whether they need to borrow money and if they do, what they are going to have to do in order to make the extra to cover the interest portion.
It is not rocket science and I am sure it is fallible in part but I believe we owe it to our kids to teach them that money matters and it is something that needs to be handled carefully.
They will probably hate you at the time, but they will thank you for it some day!
Get each child their own savings account (read more here) about the types of savings accounts and let them learn to start becoming more responsible for their financial futures.
Once they have mastered simple savings accounts and saved enough to step up to other investment opportunities, step them along to a CD or certificate of deposit to teach them the value of higher interest rates.