It’s easy to get frustrated when you feel like you’re constantly chasing the kids around the house, telling them to turn off lights, shut the door, and not waste water while they wash their hands. Add that on top of the constant question, “Can I have this?” with every turn of the shopping cart, and you might begin to feel like your missing something when it comes to bestowing your financial knowledge onto your kids.
Well, you aren’t alone. Most parents don’t know where to start teaching their kids about money and begin to feel overwhelmed just thinking about it!
Here we are, learning a ton, investing to the best of our ability, hustling at day jobs, and doing our best to manage the family finances in a way that not only sets us up for a great, freedom-filled life but we’re also intent on passing on this wealth and knowledge so that future generations don’t have to struggle like we did starting out.
The thing is, while we remember the struggle like it was yesterday, our kids only see what life is like today. With full bellies, all the toys they can handle, a plush bed, and a sweet vacation each year, they don’t necessarily understand the value of a dollar or the sweat and tears it took to reach this level of financial freedom.
This is why it’s even more critical that we talk openly with our kids about spending, saving, and investing and that we instill positive financial values while they’re young. We want them to be equipped with the tools to care for themselves, build their wealth, responsibly use the wealth we pass to them, and positively impact the world when it’s their time.
Keep reading for a few simple concepts you can teach your kids and tangible lessons you can implement as part of your plan toward creating generational wealth.
When Kids Can Grasp Financial Concepts
Of course, you’re not going to bolt out of the gate teaching compounding interest to your 4-year-old. Kids can understand a little more at each age range, and you slowly build on their math skills and present simplified financial concepts based on their age, the situation, and the lesson you’re shooting for.
Young kids just need to learn basic arithmetic and have practice earning money, saving some, and spending some. This teaches them the basics of how the world works – you earn $10, you save $2, and you can buy a new toy for $8. Simple, right?
As they get older, you can begin to connect their actions with financial concepts. Leaving the lights on, for example, might make the electric bill higher, and you have the opportunity to present and share the statement from the electric company and discuss this financial obligation that exists month in and month out. When kids between 5-9 years old can connect that each thing we do or have is paid for somehow, they’ll start to be more considerate of your household budget.
Between the ages of 9 and 15, kids can understand adult-like financial concepts like credit cards, compound interest, investing, and compute complex equations. At this point, it’s highly recommended that you share much more about your income, your bills, mistakes you’ve made, and, yes, your investing choices with them.
Teaching concepts to our children while they’re young, while they have time to practice and mess up under your wing instead of when it matters (like with rent or their credit), provides them an even greater chance at financial success.
Saving Is Important, But Teach Investing Too
The most important thing, no matter the tools you use, is that your child gets access and experience with money. That means earning it, making choices whether to spend or save it, losing it, investing with it, borrowing it, paying it back and everything that we do with our money but on a child-size scale.
So, maybe you guide them in starting their own business over the summer, you walk through their earnings, supply costs, and what to do with the profit. As you encourage them to save some, spend some, donate some, and invest some, talk to them about why these choices are important and share about similar decisions you’re making with your own money.
Don’t be afraid to share more significant concepts like the impact they could make on a large scale with donations, mistakes you’ve made and what you learned from them, or how they can double their money investing as you do now in real estate syndications. The real lightbulb moment will be when they begin to understand that investments provide passive income – so much so that, if done well, they can choose whether or not to work.
You get this beautiful opportunity to guide them in earning their first several thousand dollars, building up their savings, and gaining exposure to the fantastic world of investing. Just imagine how much more opportunity for freedom and impact they have just by exposure to these concepts. Amazing!
The #1 Mistake Parents Make With Kids About Money
In general, talking to your kids about money is 1000% better than avoiding the subject. It doesn’t matter if you feel like you’ve made great choices or if you have a spotty past with your finances. They need to know about those mistakes to learn from them, and they need to know about the great decisions you made so they can emulate them.
Either way, discussing finances and allowing your child some exposure and experience with money and financial conversations provides them more knowledge and confidence with money than if it were never discussed at all.
Unfortunately, there is one glaring mistake we’ve probably all made.
Let’s all collectively raise our right hand and admit that we’ve said, “We can’t afford that,” at least once in response to a child’s request for whatever shiny new thing that caught their attention.
Hey, I get it. Sometimes that’s the easiest, most automatic response. Sometimes you’re just tired of saying “No,” and you need another phrase. But let’s also collectively swear that we’ll try not ever to say that phrase again.
The truth is, we probably can afford that, but it’s easier not to have to explain why we’re not buying it. It’s crucial we intentionally replace that phrase with a new, more precise, more truthful expression like, “That’s not why we’re at the store today,” or “That’s not in the budget right now,” or “The money I’m spending today is only for groceries.”
It’s okay to tell your kiddo the truth about why your answer to their request is no, and it’s even more okay to have an in-depth discussion about budgeting, spending money on meaningful purchases, and investing for the future instead of instant gratification. Honestly, we adults struggle with these concepts too, so it’s a great idea to introduce them at a young age.
If you replace the ‘we can’t afford that’ quip with an open conversation about financial choices, you and your kids will be much better off.
What Should You Do Instead
The best thing you can do toward teaching financial literacy to your children is to model your own financial choices for them. Talk them through the options you have, why you’re making one decision over another, what bills you’re paying and why, and even the trade-off we all face in spending money versus saving it versus investing it.
They need a taste of reality while still protected and living at home to learn about decisions they will have to make when they are on their own. Allow them to exercise their own spending habits and make the $20 or even $100 mistakes now because those are much better to learn from than the $1000 + mistakes they could make with rent money when they’re older.
Share about your income and bills so they can see what it costs to live their current lifestyle. At the same time, share openly about what it was like for you when you first started out. Although it might be hard to talk about your mattress-on-the-floor and ramen noodle days, they need to know that your life wasn’t always cashflow positive.
This openness can help them realize that it’s okay to start out small and that, realistically, they won’t be living their same lifestyle on their own as they are at home. They’ll begin their independent financial life with accurate expectations and knowledge of what utilities, transportation, food, and other necessities cost, and they’ll be less likely to feel like a failure in comparison to the lifestyle you’re able to provide.
Positively Impacting The Next Generation With Financial Literacy
Create an open highway of communication between you and your kids about money and financial subjects so that they can always come to you with questions, dilemmas, wins, and losses, and so that you’ll continuously have the chance to guide and teach even as they grow into early adulthood.
We’re always learning, right? So, again, it’s a great idea to model that for and discuss your journey with your kids. You don’t need picture-perfect finances to be an authority on the subject with your children. They’ve already looked to you for every answer they ever needed their whole life, and they aren’t stopping now.
In fact, it’s better if things are a little messy because they need to see firsthand that you’re always learning, winning, failing, researching, and trying again. Remember, reveal your wins and your losses so that the lesson you’re teaching is realistic and they can develop accurate expectations for their own financial life.
The big thing is that you teach them the power of investing and help them get the correct accounts set up so they can practice and begin getting financial experience. Just imagine how different your trajectory would have been if you’d known about compound interest, passive income, and real estate syndication investments when you were their age!
Most parents I’ve met and talked to didn’t get much of a financial literacy lesson from their parents, if at all. Fortunately, most of those parents are also absolutely determined to teach their children about money and break the cycle of credit dependency, struggle, and living paycheck-to-paycheck. With the simple tips and encouragement in this article, now we all have an opportunity to positively impact the next generation by teaching financial literacy to our kids!