We’ve all heard it before. Most Schools just don’t do a great job preparing our children for their financial futures. So, we as parents must take the reins. But where to begin? What’s necessary for them to know before they fly out of the nest?
1. Budgeting and Saving
One of the most important financial concepts that I want to teach my children is the significance of creating a budget and sticking to it. Children are generally not wired to plan ahead, so it can be a new and challenging concept for them to save money for something they want to buy over time. Unfortunately, many adults today also lack this skill and often end up struggling with debt. That’s why I am determined to help my children practice budgeting and saving money for future spending before they are on their own. By instilling these habits early on, they can learn and practice these financial skills before they become a necessity.
2. Delayed Gratification
Have you ever seen the viral video of a two-year-old child being offered a marshmallow and being told that if they can wait three minutes before eating it, they will be given another marshmallow to eat with the first one? This experiment highlights the importance of delayed gratification. In today’s world, children have easy access to electronic devices that provide instant entertainment, making it more challenging for them to learn the concept of delayed gratification. However, children who learn this skill are more likely to become responsible adults who take the time to analyze purchasing decisions, which may help them avoid overspending and ending up in debt. As a parent, I try to teach my children that waiting for something they want is okay. This helps build their delayed gratification muscle early, which will be useful to them in many ways in their adult lives, especially with regard to managing their finances.
3. Needs Versus Wants
It can be difficult for children to differentiate between needs and wants. A child’s wants can often feel intense, real, and powerful. However, it’s essential for children to learn to distinguish something they want for fun and pleasure versus something they need. As a plus, having a solid grasp of needs versus wants may save your child a tantrum or two at the toy store when picking out a gift for a friend’s birthday. I try to use moments like that to explain the differences between wanting and needing. This lesson will hopefully translate later into their teenage and adult years as they navigate how, where, and when to spend their money—and hopefully prioritize their needs.
4. Earning Money
I also look for opportunities for my children to earn money from their hard work. Experiencing the joy and satisfaction of receiving money after completing a chore is paramount. Eventually, this pattern will help them realize the value of hard work and its benefits, such as helping others, achieving a goal, and, yes, earning money. As they continue to experience this connection over and over, they will know that the path to wealth and success is through dedication and hard work. No one owes them anything, but they can achieve their goals if they are willing to work for it.
5. Compound Interest
Compound interest is a slightly advanced topic, but it’s essential for understanding personal finance. Our financial system rewards time, so it’s important to teach children how their savings accounts grow over time. I try to show my children that as they deposit money from gifts or earnings into their savings accounts, they are gaining more money from interest – without them doing a thing! I explain that the bank pays them a small percentage of the amount in their accounts as a thank-you for keeping their money there. Over time, they’ll see that the interest they earn grows because it’s calculated, including any previous interest earned, and the dollar amount compounds. This highlights the importance of saving money earlier in life and letting it grow as you save more.
6. Open Communication
Another strategy I use to teach my children about money is to encourage an open communication policy at home. I believe it’s important for them to understand that discussing money is a normal and necessary part of life and nothing to be ashamed of. We all make mistakes, but it’s important to learn from them and make better decisions in the future. To set a good example for my kids, I try to make sure they see their mother and me discussing financial matters openly and with mutual respect. By creating an atmosphere of open communication, our children will understand that talking about money is not only necessary but also nothing to fear.
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About The Welch Group
The Welch Group is a fee-only, employee-owned wealth management firm committed to enriching the lives of their clients. Founded in 1984, The Welch Group helped pioneer the fee-only financial planning and investment management movement and has continued to put the needs of clients first ever since. Offering wealth management and family office services to retirees and young professionals, The Welch Group team strives to simplify financial management and help clients secure their financial future so they can focus on what matters most. Our personalized and comprehensive approach helps clients plan for their goals, needs, and concerns, including estate planning, cash flow, charitable and tax planning, and retirement strategies.
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