9 Great Money Lessons to Teach Your Kids (Before It's Too Late)
You have to raise your kids in a way that prevents them from getting employed. I will explain. But before that, let me ask you this, When You Were A Child, What Did You Dream You'd Become? At first, I wanted to become a pilot because I thought pilots were cool. Then as I grew up, I wanted to be a cricket player. And as I further grew up, I wanted to be a video editor. But fast forward to 2022, I am here, sitting in front of a computer, writing code.
How many of you can wake up every morning and say, I love my life, I love how I feel this morning, and can't wait to get to work? Can you? Our parents and teachers always told us that if we study well, get good scores, and pass out of college; we will end up having our dream job. And we listened. We went exactly as scripted but still, here we are, hating Monday mornings and somehow pushing through the week, to get to the weekend. Where did it all go wrong? It may not be possible for us to return to the past and reset our expectations. But what we can do is not let our kids end up in a similar state.
Hey, my name is Srijith, and welcome to the channel where we talk about how to effectively make, keep, and grow your money and achieve financial independence.
What's your earliest memory of money? For me, it's related to a religious festival in my hometown. So the tradition goes like this: On this day, all the elders in the family have to give some amount of money to all those who are younger. The idea here is that when you share the wealth with others, it will grow and multiply. And this was one of the days, I looked forward to as a kid. We weren't a rich family, so this was the only pocket money I used to get. The pay scale was around half a dollar, so considering my parents and all the relatives, I could make around 5-10$. This may not seem much, but for me, that was like winning the lottery.
This payout has increased considerably in the past few years, and nowadays, kids easily make around 100-200 dollars. I guess, Inflation has caught upon even traditional Hindu customs. Anyhow that money was a big deal. So the previous night, before heading to bed, I would think of a list of things I could buy with this money. The next day I wake up early, sleepy but excited, and show some extra respect to all the elders because you know money. And by the end of the day, I am standing there with my hand full of coins, and I am confused. I am happy, but I am confused. This money is not enough to buy everything there on my list. And I don't know which one to prioritize. So I keep counting the coins, again and again, hoping that counting them might somehow make them multiply.
Finally, I ended up in a decision paralysis mode and handed over all my money to my mom to keep it safe until I was old enough to make the right choice. And I haven’t seen that money again. Maybe my mom thinks I am still not responsible enough to make my own money decisions, and we have a secret treasure bunker under my house where all my coins are kept. Who knows.
But When it comes to money, it's always more confusion than clarity. In the school, we are taught various subjects such as Social Science, Languages, Natural Science, Math, rt. But How to save money, how to spend money, how to manage money, nothing. So it all finally comes down to our parents. My parents taught me the importance of getting a good education and a good job. And I am thankful to them for that. But the teachings stopped there. So even until recently, when I get my paycheck, I still stay confused like that ten-year-old me, thinking, am I efficiently making use of the money that I earn?
And what do we do when we are confused with our money? We take the easy path; We use the money to spend on things we don't want to impress people we don't like. Because the other path is difficult, it's difficult because we don't know how to do it. And when we see rich successful people around, efficiently managing and growing their money, we think, Oh, they got lucky. They inherited all that wealth. Wrong. The difference is that someone taught them how to deal with money early in life.
A study shows that people who learned about money as a child are three times as likely to have a personal annual income of $75k or higher than those who didn't. What parents teach their kids about money makes a difference between somebody who will eventually become wealthy and successful and someone who won't. So in this blog, I will explain to you nine things you could do if you want to raise your kids to be financially better off in their life. I am not a child psychologist or financial advisor. I am just a random dude on the internet trying to be less wrong today than yesterday. You are the one who knows your situation and your kids better than anyone. So feel free to take this information, but make your own decisions.
Talk to your kids about money
Many people consider money a taboo topic, even within our own homes. Making more money is thought of as evil. Because honest people can’t be rich. Because you need to be selfish to build wealth. The irony here is that everyone still wants to be rich. All these wrong ideas come from the belief that there is a limited amount of money out there and that if we want more in our pocket, we have to take it from someone else. But what we have to understand is that money is only a resource or a tool to transfer value, and there is plenty around for everyone. And if used properly can help you to have options and a better quality of life.
There is one thing that separates parents who are serious about raising children to be financially successful from others. They spend a lot of time explaining money matters to their children. They include topics about saving, investing, and budgeting in their conversations with their kids. But we know how kids are. They don't even listen when we talk to them about their studies, eating habits, or other affecting them, Why should they do it for finance? We shouldn’t lecture them on financial topics.
Forget kids. That’s even boring to me. We shouldn't call our kid while he is busy playing and like, Hey, Listen, Now I will explain to you what compound interest means. Include financial education naturally along with other conversations you have. Be calm and respond to whatever questions they have. The goal is empowerment rather than conformity, and the methods are respectful rather than coercive.
If you struggle with money management, you can also talk with them about your mistakes and how you're working to overcome them so they can hopefully avoid similar errors in their own financial lives. And the topics you discuss should also depend on the child's age. If you have a teenage daughter, talk about the gender wage gap, and teach them never to be afraid to ask for what they believes and deserve. Remember that it is never too early to talk about money. The habits they learn now will set the foundation for their entire financial future. But it's not enough to talk to them about the money. There is no guarantee that you will be taken seriously. That is why it is important to take this next step.
2. Involve them in financial decisions
We have to involve them in financial decisions in the family, especially those directly concerning them. For example, if your son wants to go on a school trip, ask him to list out an estimate of all the expenses for that day. From fares to food to ice cream. It need not be perfect, but only once he has made the budget, give the cash. By asking them to create and stick to a budget, you are teaching one of the crucial factors of financial health. Not to spend more than you earn. They will understand the difference between necessary and nice-to-have spending. They will know that the afternoon lunch is important, but the ice cream after that may not be that much. Although I would skip lunch for an ice cream. But that’s me.
There is a good point made in the book Unconditional Parenting by Alfie Kohn; I believe our default position ought to be to let kids make decisions about matters that concern them except when there is a compelling reason for us to override that right. It's important to experience a sense of autonomy, a feeling that we are the initiators of much of what we do. The particular choices we make are often less significant than the act of choosing itself.
The way kids learn to make good decisions is by making decisions, not by following directions. And they are much less likely to resist decisions they helped to make. But all the talk and planning can only help up to a point. Children cannot fully understand the concept of money until they have their own and put it to use. That's why the concept of money buckets become very important.
3. Money Buckets
Children won't learn about money if they don't own money. So you have to give them an allowance. You can do that at a fixed interval, like weekly or once a month. Or better as a payment for doing some household chores like cleaning their room., getting groceries from the shop. Kids who've earned that money will be more mindful of how they spend it instead of just being handed over to them. Irrespective of how you bring money to the kids, if you don't set up a proper mechanism for them to manage it, all the money might get converted to chocolates and toys. That's where money buckets come into the picture.
Almost everyone had a piggy bank at some point in their life. Have you ever thought about what pigs have to do with saving money? And why pigs? Why not a puppy or a kitten? During the Middle Ages, metal was scarce and expensive, so in Western Europe, people made pots out of an orange clay called Pygg. Along with other things, people began to save small cash in those pygg pots. Because you know, Visa and Mastercard weren’t so popular then. You get where I am going with this. Pygg, Pig. Piggy. Still no. Oh common. Anyhow coming back to our topic. Normally as kids, we kept all our pocket money in one piggy bank. Instead, ask your kid to divide the money into three separate piggy bank jars or buckets. One for spending, one for saving, and one for giving.
The spending jar can be for candy or other small immediate purchases. The saving jar can be for costlier items requiring longer-term savings. The sharing jar can be for charitable causes. And if they want to buy something, ask them how much money they got in their jars. Explain why they should be saving a little money, either for a big purchase or for their future, and help them decide how much they should save and spend. This will help them learn about earning, money management, and other life values.
Giving is also equally important as spending and saving. You should encourage your kids to take a portion of their money to help others or for causes that are important to them. And instead of blindly praising them for doing something generous, try to draw their attention to the effect of their action on the person they helped. Ask them questions like how do you think that old homeless woman would have felt when you bought her lunch with your money.? Financial literacy is just the first step.
We want our children to be prosperous, generous human beings who will solve the world's problems. All these are great money lessons, But there is one crucial aspect that rich parents teach their kids that the poor don’t
4. Assets and Liabilities
99.99% of the world’s population thinks about income and expenses. How much money you make and how much you spend. The whole family budget, even if one exists is based on that. But two key parts are missing. They are assets and liabilities. If you haven't heard of it before, assets are things that bring money into your bank account and liabilities do the opposite opposite, they take money out of your bank account. For example, if you buy a house and rent it out to someone, it is an asset because it brings cash flow every month in the form of rent. Instead, if you buy a house to live in, it's a liability because it takes money out of your pocket every month.
Another important factor that should be considered along with assets and liabilities is debt. Debt is both good and bad, depending on how you use it. Rich people use debt like bank credit to buy assets that make money, for example, an apartment that generates rent, or a business that generates revenue. Poor people their money to buy liabilities and go into debt. And they get poorer. That is why many people who win the lottery go broke in 3 to 5 years. They spend that money to buy luxuries and liabilities and not think about assets.
You will know you achieved financial independence when you have enough assets working for you. So that you can stop working and still bring in enough residual income to maintain or even grow your financial position. And it's an important knowledge you have to pass to your kids as early as possible. Whatever I explained until now will help them how to manage their money. But won't teach them how to make more of it. And for that, there is a better way than a 9 to 5 job.
5. Job Security v/s entrepreneurship
There is a script for life that we all know and execute perfectly. Go to school, then college, get good grades, graduate, get a 9-5 job, get married, buy a house, have kids, save a percentage of your salary, invest in the stock market, max your retirement funds, and then, someday, when you are, like 65 years old, you will be rich. And that is how 99% of the people grow and end up being.
My mother is the most hard-working person I know. She worked a day job from 9 to 5 and simultaneously managed a family with three kids. She worked in that same job for more than 30 years. At a time when unemployment was high, and job security was the most important thing, that made total sense. But this traditional "one job till retirement" model is not working anymore and might not work in the future. It might be difficult to say this to your kids if this is what you've been doing all your life, But it is so important to get out of this denial mode and let your kids learn about entrepreneurship. To be an employer and not an employee. It is important to inspire them to go on alternative paths. So that they will want to create something of value and importance in the world as well. Give them something to dream about and someone to help.
What I am saying is that not every kid should grow up to be an entrepreneur. Making more money or owning your own business is not the only way to happiness and living a happy, content life. But they should have the options. At least they should know about the vast opportunities that lie in front of them. Your job as a parent is to open the doors for them. The game-changers of today's business world are authentic creatives doing what they love. Don't let your kids fall behind. But one can't be a successful entrepreneur if you don't have one skill. The one key skill, that every parent should try to build in their kid from a very early age.
6. Teach your children to be problem solvers.
Solving other people's problems. That is one and only one way to make money. The amount of money you make depends on how big the problem is and how much value you can provide. You can see from the lives of many successful millionaires out there, that they were so effective in solving the problem of the masses. In the early 2000s, the delivery times for online goods were very long. And this was making people frustrated. When someone finally decides to buy something, they want to get it as soon as possible in their hands rt. Someone saw this as an opportunity and started a two-day delivery for products. Now Amazon Prime delivery is so popular that it has become the norm for much of the industry,=. Bezos identified the problem, offered solutions, and made millions. Your kid could also be the next Jeff Bezos or Steve Jobs If you can teach kids to identify problems and see them as opportunities and make them think about solutions. For example, as we were kids, we used to paint with crayons, and a common problem was the crayons breaking easily and being not usable. Cassidy was a young little girl when she was faced with the same problem. But she came up with an idea to hold broken crayon pieces together. Her parents helped her file for a patent in 2002 for her invention, and she got a licensing deal a year later that also entitles her to a 5 percent royalty on sales. Build the habit of identifying problems and thinking about solutions at a very young age. Eventually, that will become embedded in their DNA and will change the way they look at the world.
Making money is important, but it is that much more important, to grow your money and protect it from inflation. And there is an easy, simple way to do that.
7. Teach them to invest
If entrepreneurship is important to earn Money, Investing is a key part of saving your money. I was fortunate to be introduced to investing as early as when I started earning a salary. My mom worked in the financial sector, and she took care of all my investments. And she still does that by whatever means she can. But this is something many people of any age don't know how to do. As I said earlier, we never had a chapter called Investing in School. By the age of 9, children are usually beginning to use fractions and percentages. That makes it a good time to start teaching them about investing. If you are someone who has investment knowledge yourself, explain the basic concepts like money invested can earn a return over time. Better, ask them to identify a brand or company they are already interested in. Like Disney or the toy brand Hasbro. Then help them to invest a small amount of their own money in that company. And watch them get excited about how their money grows without doing anything. But like Rocky said, the world ain't all sunshine and rainbows. That's why the next point is the most important one you should teach your kids.
8. Teach them to be ignorant, make mistakes, and learn.
If you aren’t ignorant, you can never learn. And we have to teach our kids to accept ignorance. Tell them that not knowing is a good thing. And guide them on the path to more knowledge. Help them to develop healthy habits to get information, such as reading. I learned much about investing from books. I got the courage to start a YouTube channel from the book Show Your Work by Austin Kleon. Books changed my life for the better, and they can do it for your kids too. An equally good way to learn is by making mistakes.
In school, we learn that mistakes are bad, and we are punished for making them. Yet if you look at how humans are designed to learn, we learn by making mistakes. We learn to walk by falling. If we never fell, we would never walk. Kids need to be encouraged to make mistakes, build things, and break things. When you go shopping, ask kids to bring their own money with them, and let them buy things they want. When they make a cheap purchase, and it breaks almost immediately, that will make them make wiser purchases in the future. And finally, all that we have talked about until now will be of no use if you don't follow this one last piece of advice.
9. Lead By Example.
Lead by example and show them how to be responsible with money. Pay your bills on time. Stop buying things you don't need and accumulating crap. Before you make any purchase, think about why you are buying it. Are you buying it to show it to everyone, or because you want to have it yourself? Children are always watching, even when you don't realize it. What your kids see, they're likely to repeat. You can't teach good personal finance if you don't at least try to practice it yourself.
The world is not an easy place to be in. And your kids, they didn't ask to be here. And as parents, it's your responsibility to be patient and help them be happy, independent human beings. And for that, you have to set aside your needs, your fears, and do whatever is possible in their best interests. Sure, it's hard to be a parent. But it can be a lot harder to be a kid. And if you want to improve your financial knowledge so that you can pass on that to your kids, check this video where I explain the basics of the stock market. Until next time, take care and bye.
Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. It is important to do your analysis before making any investment.
