Wealthy habits are learned. From an early age kids figure out what money is (a medium of exchange) and are seemingly always asking their parents for more. Out of love, parents these days (my hand is raised) usually spoil their children way more than they realize, much to the long-term detriment of the kids.
Two goals that most parent would agree make sense:
- Teach your kids to work and contribute to the family when they are young
- Save a portion of what they make for the future
While doing chores without pay is part of being a responsible child, adding the carrot of a cash incentive has benefits too. When your child earns money they develop a sense of pride and control and need to make new decisions regarding what to do with it. Have your kids pay for all their own treats with their hard earned cash. They will develop a priority system very quickly. The concept that only having the cash on hand available to spend is very important and will shape future spending habits. This is often quite different than their impulse buying, credit card using parents. Only spending the limited supply of cash on hand will teach them to think twice before making each purchase.
This is one of the most powerful things I have ever done for my children. Tonight, I sent my 18 year old daughter with $140 to the grocery store to shop for the week while my wife went on a hiking trip to Machu Picchu. I gave her cash to shop and she came back empty handed telling me how expensive Mariano’s was compared to Aldi. She looked at the food prices and was quickly able to surmise that prices were too high and she wouldn’t be able to get everything she went for if she shopped there. It wasn’t even her money!
WOW am I a proud dad and Certified Financial Planner!!! The values that my wife and I have tried to teach our daughter actually soaked in when the rubber met the road. Would your child have done the same? I think many kids would have spent the $140 on their favorite items and only got a portion of the items on their list. Then they would come back home and asked for more money to get the rest of the items. When parents whip out a debit or credit card to pay for items at the checkout counter, they never have to say “no” I don’t have enough money to buy that item. This continues through life and at some point adults wonder where all there money went and they don’t have much of a nest egg.
One major key to wealth is to simply save a portion of every dollar you make.
The sooner your children start the better. Did you know you can set up a Roth IRA for your income earning kids? Check with your accountant, but a lemonade stand or paper route income should work.
What age is too young? There is no minimum age. I’ve decided to match my child’s contribution up to the amount of money they earned and put that into a Roth IRA.
After opening the account, I asked each child what company they wanted to buy. Now they got exposed to stock picking. My three kids own, Starbucks, Amazon and Tesla(my son) so far.
We have all heard about the time value of money and the power of compounding. Imagine if your child put away $200 per year from ages 8-12. Just that $1,000 assuming it made 8%/year, 50 years later with nothing else added that $1,000 would now be worth about $46,000! Explaining the concept of saving a portion of what you earn can be one of the most important things you do for them.
Seventy-Eight Percent of Americans are living paycheck to paycheck Help your children be in the wealthy minority by teaching them these three key concepts :
- work for their wants
- there is a limited supply of money
- always save/invest a portion of what you make
These basic concepts are not rocket science, but it does take effort by a parent to make them happen. I hope this little reminder helps you put a positive habit forming plan in place for your children.