As soon as we turn into adults, we are told by society that we must work, save up, and invest our money to sustain ourselves and our families financially. However, once one embarks on their career journey, they may know little to nothing about finance and all its aspects, such as saving, budgeting, spending, and investing. Unfortunately, this gap has stemmed from our educational system since we were very young. Seldom does school, regardless of the grade level, teach our children how to deal with money. The bottom line is that if you don’t teach your kids about money, no one will.
Teaching your children about personal finance can pave the way for their success in the future. When those values are taught at an early age, they become intrinsic as they apply them throughout their lifetime. So, what are the basics with which you can start?
The earlier your kids start investing, the more time their money has to grow.
One of the most important lessons to teach your kids is investing – the earlier, the better. If they start small, with an amount they can afford to lose, this will only make them more adaptable and comfortable with the idea of investing. You can initiate this, for example, by opening an investment account for your child (such as a SmartWealth Guardian Account) and handing it over to your child once he/she is old enough to manage the account themselves. As they get older, they will learn the power of investing, see that growth, and become wiser in their financial decisions, which will encourage them to gradually increase their investment amount and risk appetite.
Budgeting helps keeps things organized.
Another approach to take with your children’s financial education is budgeting. This will encourage a budget plan that they can use to track their income, expenses, and savings, which can be applied to something as simple as their allowance or pocket money. The best way to encourage budgeting is by leading through example: in the simplest terms possible, explain to them your own savings/investment plan and financial situation and how they can apply that same model. To break it down, you could explain how to differentiate between their needs and wants and savings, and how to divide their money between these categories. Moreover, this will make your kids think twice before buying something they don’t really need and let them make better use of their limited money.
Saving for a specific goal helps build good money habits.
Correspondingly, an aspect in finance you should teach to your children is saving for retirement, college, and other long-term goals as early as possible. Setting aside a portion of their income or allowance to save for a particular goal can help them put their savings in context, which helps reinforce the value of it. Also, similar to the strategy SmartWealth adopts, investing or saving for prolonged periods can maximize the return on your children’s savings in the long-term. Thus, this helps highlight the importance of starting as early as possible to reach their specific goals. In fact, you can put your children’s financial education into practice by seeing how they will spend and/or save their money after giving them allowance for doing chores around the house.
In summary, to ensure financial education is taught at its best, parents should not give mixed messages to their children. Being consistent with words must be harmonized with the parents’ own monetary actions, to ensure your children have a solid financial framework which can carry them through their different life stages. Once those values are instilled in your kids’ brains, you will be setting them up for a lifetime of good money management skills and future success.
As an adult, ask yourself: if someone explained personal finance the way you know it now earlier in life, wouldn’t this have prevented some of the financial mistakes you’ve made in the past? If your answer is yes, then this proves why it is vital to teach your kids about finance as early as possible.