1. Develop a Savings Habit With Long-Term Thinking
Teach your kids to save for things they want, like the latest video game. Teach them also to save for the things they need, like their post-secondary education and their first car.
Whether your kids earn money from chores or receive money from gifts or an allowance, talk to your kids about money and the difference between needs and wants. Teach them that they don’t have to spend everything they earn. Suggest they put at least half of their money aside for long term goals.
Then, build in the notion of saving for their retirement. Helping your kids to start saving a small amount for their long-term plans like a buying a home, having a child and, eventually not working, will lead to better cash flow and less debt down the road.
2. Start Investing, and Reinvesting, Early
Developing a savings habit is a great foundation. But the money accumulating in a savings account will work much harder when it’s invested.
Your kids, with years of earning ahead of them, can afford to take on more risk in their investments. They can afford to build aggressive growth equity portfolios. Yes, those portfolios will be more volatile than money sitting in a savings account. But, those investments will more likely produce larger gains long-term.
With time on their side, your kids will benefit from compounding, which is the ability for investments to grow by reinvesting the earnings. Teach your kids about it by sharing what Albert Einstein said “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.”
Think also about this. You could have purchased an Apple computer in 1980 for US$3,495. Alternatively, for that same US$3,495, you could have purchased 1,270 Apple stock on the initial public offering. If you had stayed invested in Apple since 1980, and that would have been difficult given Apple’s ups and downs, you would have 72,000 shares today because of various stock splits. At today’s market price, those shares would be worth over $10 million dollars.
Thinking long-term and reinvesting the earnings triggers the compounding that means your kid’s money will be generating wealth over time.
3. Money Buys Options
Helping your kids understand that money buys them options is powerful and empowering.
As kids, they don’t have to worry about options. You’re taking care of the roof over their head, the food on the table, and even the money in their pockets. They also don’t really have to worry about options when they’ve moved out on their own and they’re excited about their well-paying job.
But, as we all know, stuff happens. Markets shift. Companies change. Opportunities dry up. When this happens, and it will, your kids will have more options available to them, if they’ve saved enough along the way. They can choose to return to school for a new certification or degree. They can start a business. Or they can take their time to look for the right next gig. If they have not saved up enough they’re likely to be stuck. They may need to make painful lifestyle adjustments, forced to take the first thing that comes along, regardless if it is right for them.
Teach Kids About Money
It’s one of the best things you can do as a parent: talk to your kids about money and teach them that good money saving habits will pay dividends. Get them started early and they could very well be wealthier than you are, at a much younger age