Talking about money is tough, and financial troubles can be one of the greatest causes of stress within households.
Therefore, it is a topic that many parents choose to avoid, or only touch upon lightly when educating their children.
Yet, money is important – and instilling positive values about money, while simultaneously teaching how to make, save and invest it certainly aids towards your child having a financially successful feature.
Over the last 10 years, I have been fortunate to work with many bright people from all walks of life. From tech startup entrepreneurs to the ‘millionaire next door’ types who carefully saved their way to financial independence, I’ve learned a lot.
The one thing in common is that people think about money differently – and were taught differently by their parents.
In this article, I’m going to briefly cover some of these common values, many of which you may want to consider adopting passing along to your children as well.
1. Money Must – And Can, Be Earned
We all know stories about the children who are completely spoiled, just as we know about the trust fund children that will never have to work a day in their life.
Children see this too – YouTube stars and influencers showered with gifts. Rich kids flaunting extravagant wealth that was handed straight to them.
While it’s easy to become bitter and complain about life’s unfair situations, we must instead use these as learning opportunities. Excessive complaining reinforces the ideas that…
- Wealth is unattainable unless you come from a rich family (which isn’t true)
- Becoming wealthy is something that is inherently bad (also not true.)
At the same time, we must instill the idea that money is something that has to be earned through hard work, even if other people are born into more fortunate circumstances. Unfortunately, it is far too easy for children to develop a sense of entitlement.
Of course, we all want our children to be happy, yet by giving and buying them whatever they want simply because it’s too tiring to deal with their emotions doesn’t just hurt their financial future – it also hurts their ability to regulate their feelings, develop patient, and delay gratification.
Developing age-appropriate chore charts can be one way to provide children with a way to earn the things that they want. If you want to make it easier for them, match whatever they earn as an additional reward, to help them buy more things.
Remember to reinvoke how proud you are when they’re able to go and buy something with the money they’ve earned. The sense of pride and satisfaction your children receive after earning something they wanted should certainly be reinforced!
2. Supply And Demand
Basic economics can be taught to even very young children, but becomes increasingly important as they grow older and enter their teenage years.
One of the biggest factors in our overall income is the career we choose to enter into. What many schools fail to teach is the concept of supply and demand when it comes to choosing a career path.
Throughout my life, my parents wanted me to know how important it was for me to go to college. They had never gone, and attribute their lack of postsecondary education to their poor financial outcome in life. This is actually really common – parents who didn’t go to college, trying very hard to ensure that their children attend.
The problem today is that college / university is seen as the clear ‘next step’ after high school, yet no thought is put into the outcome.
University often costs tens of thousands of dollars for a 4-year bachelor’s degree program. This is all money that has to be paid back.
Financially, the whole point of this investment is to increase your lifetime earning power. Yet so many people are coming out of university crippled with student loan debt, with no improvement in career opportunities – they end up working the same jobs they would if they hadn’t gone to university at all, yet are now crippled with debt. Why?
Because they ignored supply and demand.
Before your children graduate high school, ensure that they’ve taken a realistic look at the job market that their degree will utilize. It is possible that there will not be an opportunity to realistically get a job that would make attendance worth it.
Oh, and about ‘making connections’ and becoming a ‘well-rounded person’ – that can all happen outside of college / university. Being there just forces it. Though developing these skills is a topic for another article.
3. Debt Can Become A Trap
Following up on that last point, debt is a very important concept to bring up with your kids – as is the interest that comes with it.
Even very young children know about the concept of borrowing and oweing something. What many people don’t realize as they begin to enter adulthood is just how easy it is for debt to spiral out of control.
That being said, you don’t want to go too extreme with this either and make your children believe that debt should be avoided at all costs.
Credit cards can be very beneficial when used responsibly, and building your credit early in your adult life can set you up for significant financial savings when it comes time to borrow later on.
Still, you should take the time to introduce concepts such as credit, lending, and interest so they are fully understood.
4. Live Below Your Means
This one’s hard – and in my opinion, is getting even harder.
Depression among teens is rising in the United States, particularly among teen girls, with much of the cause attributed to social media use.
We are now bombarded with messages that make us feel worse about ourselves, and our situation in life.
We open up YouTube, Instagram or TikTok and see people who we perceive as better – better clothes, better looks, more money, more talent, more admiration… and so on.
It’s no wonder why so many people try to keep up with the Joneses. So many people are left feeling insecure or like they’re missing out – then fill this internal void with spending.
Even when our desire to spend isn’t about status or external approval, we need to help our kids deal with their impulses. Just because they want something, doesn’t mean they need to have it right now.
Additionally, we should help our kids realize the concept of value. Children are impulsive and impatient by nature. They could spend the money they earn on a cheap $1 toy that will break or forget about in 2 days… or they could save a little bit, and buy something that will bring them long-term enjoyment for months or years to come.
Show them that making smart money choices will allow them to get more of the things they really care about, with even less money than they would being careless.
Living below your means and being thoughtful with your spending decisions leads to less stress and greater long-term fulfillment than those that spend lavishly.
5. Invest Early
When it comes to saving for retirement, one of the biggest factors isn’t how much money you invest each month – it’s how early you start.
This is due to the power of compound interest. As your money starts growing and working for you, the amount you take and put in yourself becomes less and less important.
Let’s look at two examples.
Let’s say you start investing $100 a month at age 20, and you do so until you retire at 65, for a total of $54,000 invested. Assuming a 10% annual return, by the time you’re 65, your investments will have grown to $948,954.
If you were to start a age 35, investing $100 a month until 65, you would have invested $36,000 and your investments would have grown to only $217,132.
In fact, you would have had to invest $437 every single month starting at age 35, just to make the same amount you would that you would investing $100 a month at age 20.
That is the power of compound interest.
Explain to your children how investing works, and the power it can bring. Keep in mind that most people who become rich today do not do it by saving their money, but by using their money to buy things that make them more money – investments.
6. Money Doesn’t Make You Happy – But It Can Change You
Money is not the most important thing in the world.
Nor will it solve all of your problems.
However, let’s be honest with ourselves. Money is a very useful tool that can ease a lot of stress and take care of a lot of issues that people without money have to go through.
More than anything, it is a tool that can be used to provide personal freedom, help others, and grant you the ability to focus on the things that you really want out of life.
Money itself however, isn’t worth pursuing at all costs. Would you trade 10 years of your life, or lose your family and friends – even for a lot of money? Of course not.
In most cases, money brings out more of who you already are as a person, and if your children are struggling with some sort of internal conflict, money is not going to solve that for them.
Additionally, we must be mindful of how money can affect the way we perceive ourselves and others.
Your net worth does not determine your value as a human being. Just because you have a lot of money, doesn’t mean that social rules and human decency does not apply to you. People who are poor are not any less valuable as humans, and their lack of financial success does not necessarily stem from a lack of ambition or skill.
Be mindful of how you speak about different social classes – because children turn to parents for guidance and understanding, they may adopt these same philosophies and keep them as they age.
Money is an important topic, and certainly not one that should be avoided – especially with children.
These ideas are not taught in school. This is one area where the education system is failing us, yet finances are a huge part of all of our lives.
Make the investment in your children, and ensure they are well equipped for their own financial success in the world.
I’d love to hear how you’re helping your children understand money. Please share your stories and ideas in the comments below, as we can certainly all benefit from what you have to share!