By Robert Stitt
An old adage says that knowledge is power, so to give your children the gift of a powerful life, it starts with giving them the gift of knowledge. Business Insider notes that there is ” a significant lack of financial education in our country” and that “teaching your children about money is probably one of the most important gifts you can ever give them.”
Children can typically understand the value of money at about 5-years old. By nine they should be budgeting and investing by 12.
Business Insider gives 12 lessons to learn before 12. Here is a summarization of those all important topics.
- Stock. You don’t have to get into PE ratios and valuations. Teach your children that buying stock is buying a part of a company. When the company does well, you do well. When the company does not do well, investors do not do well. Pick out a couple companies to follow together and see how they do.
- Greed. Teach children the good and bad about greed. Keeping everything to yourself has a negative impact on everyone, including your portfolio. Just giving everything away is not the answer either, though.
- Donations. Giving is a sign of compassion, wisdom and enlightenment. There is a difference between donating and throwing things away. Teach your children to be giving, but wise.
- Budget. It is hard to be financially secure without a budget. Very rich people are now very poor because they did not have a good budget. Teach your children to budget properly. Consider the 50:30:20 rule.
- Taxes. Explain the purpose of taxes, how they are imposed, why, and how to plan for them. Consider “taxing” some things at your home.
- Saving for Purchases. Delayed gratification is an essential lesson to be learned if your children are going to have financial success. They need to know they cannot always buy anything they want whenever they want. Teach them to have a plan and save for things they really want.
- Debt. Explain to your children what debt is and what the difference between in-debt and debt-free is. Make sure they understand the difference between good debt and bad debt.
- Tracking Spending. It is hard to budget your money if you don’t know where your money is going. Teach your children to track their money on a weekly, monthly and yearly basis.
- Need versus Want. One of the best places to start with your children is the understanding of what is needed versus what is just wanted. This will help them build a budget later on and plan for savings.
- New versus Used. Explain the difference between new and “new to you”. Help them understand the difference in cost between something that is new and used. Help them understand what things are perfectly fine used and what things to avoid.
- Compound Interest. Perhaps this one is for the older children, but understanding interest and the various ways it is compounded can help encourage savings and long-term planning.
- Credit. Teach your children that credit is not free money. Explain how interest can work for you, but when you’re the one paying it things can get out of hand quickly.
When you teach your children the value of money you give them a gift that can change their lives.