Two in three families lose the wealth they have accumulated by the second generation. While the extravagance of descendants is likely to invite the curse of the third generation, they are not entirely to blame. Parents who fail to teach their children about money have a role in the dwindling of their fortune over time.
Teaching children the value of money from an early age has several benefits. Children whose parents talk to them about money tend to become financially responsible. They don’t just preserve wealth, they also find ways to increase it.
It’s never too early to start teaching kids about money. A three-year-old cannot fully grasp the value of money and how it works. Start by helping them identify coins from currency notes. Teach them the basics of buying and selling by setting up an imaginary store in the living room where they can “purchase” things with the money.
By ages six to eight, they may have a clearer understanding of money. Around this time is when most parents first give their kids an allowance. The key is to make them earn it. It teaches them that money is earned and leads them value it more.
Teach them to save some of their “earnings” instead of spending them all. Get them a clear jar where they can save up. Clear jars help children see their savings growing. It also motivates them to want to fill it up.
Once they fill the jar, help them open a savings account to transfer their savings to. To encourage them to save, talk to them about interest and compounding. Explain to them how banks pay them back for saving their money.
From age nine to 12 is a good time to teach kids that things cost money. Have them grab a five-dollar bill from their jar and buy something with it. They’ll feel the pinch of spending their hard-earned money.
Let them decide how best to spend the five dollars. This will teach them opportunity cost and how to make better money decisions. Help them understand the cost and benefit and how far five dollars can go depending on how they choose to spend it.
Around age 13 to 15, teach kids to budget. This is the ideal time to teach them the difference between needs and wants and how to prioritize accordingly. Show them the family budget, and how it prioritizes the most essential items over non-essentials. Remind them to always budget for savings.
In addition to learning to earn their keep, saving, spending wisely, and budgeting, teach them about debt. Help kids tell the difference between bad debt and good debt. Good debt finances itself or frees up money to invest in other areas. Bad debt is money borrowed to pay for depreciating items.
They say it’s the people who give who will be remembered long after they’re gone. Teach kids the importance of giving. Help them pick a cause they’re passionate about and donate time, clothes, food, or money. This way, they grow up knowing that giving is just as important as receiving.
Children learn best by observing. The best way to teach them how to handle money is by example. Kids who grow up in a household where everything is budgeted for, and where parents avoid irresponsible debt, are more likely to adhere to money management habits.
