Our children are the future. Unfortunately, many go into adulthood without a good understanding of finances. This can lead to poor decision making and wrong priorities. With that in mind, here are 5 ways that you can set your child up for success in regard to their finances. You may also find that several of these principles carry over into all aspects of life as well.
1. Start when your child is young.
Let him see you use money to buy things. It is ideal for him to see you spending cash, but if you do use a credit card, explain that you are still spending money to purchase your items. This will help form the understanding of what money is and how it works.
Don’t forget that your child is watching you and your money habits. Studies show that the foundation for our attitude towards money and our spending habits are formed as early as age 7. If your child sees you arguing about money with your spouse or spending beyond your means, they will eventually catch on. But a good example with your money habits can go a long way in your child’s view towards money as well.
Additionally, have your child help with some of the tasks in your business. After all, they are already watching you do it! Taking part in the family venture can give your child a sense of family unity and a desire to be an entrepreneur himself.
2. Give your child opportunities to have his own money.
Ideally this is a commission or reward for chores done around the house. This will teach your child that the money is earned by working, and it also gives him the satisfaction of the reward for his labor.
Use this time to talk about the “opportunity cost” of spending money. You can explain it this way: “I know you really want that toy, but just remember that if you spend your money on that, you won’t have any left for those cool shoes you wanted.” Giving your child the choice will teach him to take responsibility for his purchasing decisions.
3. Teach your child the importance of giving.
Children as young as elementary school have the ability to learn the reward of giving from what they have earned. There are many opportunities to give to worthy causes, be it a church, a charity, or a friend in need.
Not only does giving help someone else, but it is also satisfying for the giver. Helping your child develop this habit will serve him well later in life.
4. Teach your child contentment.
Of those who participated in a Pew study of American Household Incomes, only 46% reported that they earn more than they spend in a month. Although it is true that people fall on hard times financially, the truth remains that our society is detrimentally materialistic. Rather than being content with what we have, we live above our means in order to have the newest and best thing out there.
Especially as your child grows into his teenage years, teaching him contentment with what he has will help him develop the habit of not spending more than what he has on something he doesn’t need.
5. Talk about the magic of compound interest.
Although investing can sound like old-person talk, the truth is that the earlier your child starts to invest (even in this teen years), the better off he will be in adulthood. Compound interest is a beautiful thing that only gets better the earlier you start investing. Teaching delayed gratification will benefit your child in all areas of life, not just with money.
Bonus Tip: Set the Example
In order to set a good example for your children, you need a good understanding of finances yourself. We can help! Our Accounting Hub gives you the opportunity to get help with your small business’s accounting needs so you can know exactly where you stand with your books. Schedule your consultation today!