If I had just invested $100 from the age of 4 until the age of 18, conservatively I'd have a million in the bank at 62. Too bad I wasn't thinking about my 401k or retiring early back then! Instead I spent every dime on something shiny and new. And I can't say my parents were to blame. They taught me about saving and investing from an early age, but somehow it just didn't catch on until I had my own bills to pay. So as new parents, how can we teach our kids about money in a way that sticks? How can we better prepare them for living in a future which will inevitably be much more expensive than our own? Here are some tips and tricks to get started:
Be a Good Role Model
- Kids learn from watching you. If you've got unhealthy habits when it comes to finances, where will they learn to do it better? Make sure you've got things in order before trying to impart good habits onto them. Want them to be savvy shoppers? Lead the way.
Spend Only What You Earn
- As Dad always said – if you don't have the money to pay for it now, you can't afford it. Kids shouldn't learn to see their parents as low-stake lenders or they'll constantly be coming back for more.
Establish an Allowance
- Receiving a 'paycheck' mimics what adults go through in everyday life. As long as you stick to the agreed amount, kids will have to learn to budget their money in order to get what they want. Make sure it's something both parties can live with though – not too measly, not too rich.
Consider Uncle Sam
- Some experts suggest taxing allowances so that kids can learn to distinguish between gross and net income. If you choose to go this route, make sure the taxes taken are used for improvements or services that better their lives. No pork barrel spending on new shoes Mom!
Decide What Pays and What Doesn't
- Some tasks are company requirements and don't pay out. Good grades and family chores might be something you consider keeping on that list. Doing the right thing doesn't always equal a cash reward in adult life – an important lesson to learn from the start.
Start Saving and Investing Early
- Have kids save part of their allowance for their long term goals – that new bike, cell phone or computer. Once their savings grow, encourage them to invest in order to maximize their return. Teach investing in basic terms and let them drive their decisions.
Beware of Bailouts
- In a free market economy, you're never too big to fail. Consequences come from our own actions. Even Warren Buffett may have splurged a time or two, but ultimately we learn from our mistakes. Insulating kids could do more harm in the long run when there's no one there to bail them out.
- One thing is for certain – you get what you give. Encourage your kids from an early age to contribute to causes they are most interested in. Allow them to make it their own, even if you don't share the same interests.
We'd love to hear from you. What are some strategies you've used to teach your kids about finances? What worked and what failed?
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