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Congratulations, you have a brilliant kid in the house and the more your little angels grow up the more responsibilities are piling up. This is the challenge in parents nowadays. You are taking care of a money making machine, sooner or later that kid will become an adult and earn millions thru his/her entire life. How do you train them about handling their finances will give them a better advantage. There are a lot of things you can teach to a child but I consider these are the pillars of personal finance.
Once your child knows how to count that is the moment we are waiting for. It would be better for you to start doing this. Again, don’t be frustrated if your child is having a problem making adjustment with what you are trying to impart to them. This is not an overnight process. Being a mom or a dad is lifelong career so just keep guiding them and never stop trying different approach.
Spend using cash– Your child already has a Ph D. in spending so it wouldn’t be too hard for you to teach this. I think you have a Ph. D. too. The “I want it now in them” is being activated whenever they see something they WANT or colorful. Teach them that their allowance has an allocation for it. Introduce the word “budget”. Remember to spend only 50% max (this is my personal take) of what you give to them because there are things that they still need which is MORE important. Whenever me and my child roam around anywhere I normally set her expectation that we will just buy food and not toys or vice versa so that we can to avoid further tantrums. Skies the limit is not in my vocabulary. If you can’t let your kids abide a simple rule then most likely they will have a problem when they turn adults. Spending cash has a link with out emotion. It really hurts to spend cold hard cash compare to a plastic card. In addition to it “You really do spend more with plastic than cash”- Art Markman Ph. D.
Rule of thumb for this is 50% of her allowance.
Save for the future- Since I have a daughter I am trying to give her an idea that having patience will be more rewarding (Ideally). As much as possible you give her visions of long term discipline. Whenever she wants something then she can use that money she saves for the toys or shoes that she wants. If you will keep giving your kids money without guiding them properly that will be a curse for them that’s what Dave Ramsey said. Always tell your child what’s the purpose of saving because this is counter intuitive. You don’t want to be kill joy in the eyes of your child. The best way to teach is thru modeling not on what you’re saying. Be a really good role model.
Rule of thumb for this is 20% of her allowance.
Invest regularly – Time to start a brand new and powerful habit. As early as 3-5 years old your child should at least have an idea about financial principles from you. Don’t start teaching your kids about money when he/she is already in college. I can say that the earlier you teach them about finance the better. Once your child gets the momentum of saving and you were able to see that he/she is more comfortable now. Your child needs to understand why you are doing this in the first place. 15% from his/her allowance is my rule. If you will be able to impart this knowledge and this becomes a discipline I can guarantee you that your child will become a millionaire or even a really good investor. Your child knows how to win the game of money. Your little kid will be able to afford the future. This is not a rocket science. Never lose hope that he can afford the future. You badly need to repeat it again and again the principle or else they will lack wisdom. You are giving your child the priceless but the most expensive principles of all time that is not available literally in school.
One great investment that all parents can make is in the financial education of their children. Kids who learn money management skills and healthy spending habits at home are more likely to become financially responsible adults. Studies have linked structured financial education early in life leads to lower materialism, lower compulsive buying, healthy financial risk tolerance, high future orientation and high self-efficacy. -ELOAN
Give – Giving back is such a wonderful act. When your child were still babies and you keep on asking them to share their toys or other stuff that they own the answer you normally got is “This is mine! Why should I share it?” I love how my daughter is doing now; I’m seeing the seeds that we planted in her. Seeing my daughter respond when it comes to helping someone makes me a proud dad. She’s starting to value giving compare to the previous years. She has this heart that melts whenever she see kids from the street. She kept on asking me to use some portion of her savings to give to the street kids or poor people. 15% or more is my rule. Encourage your kids to give to your local church, relatives or non profit organization like Real Life organization or Right start. If giving is not something that you really love then please don’t expect your kids to follow you. It will be very hard for your child to understand this if you are not doing it..
For example, research by social psychologist Liz Dunn and her colleagues appearing in the journal Science shows that people’s sense of happiness is greater when they spend relatively more on others than on themselves. In one survey of over 600 U.S. citizens, Dunn and colleagues found that spending money on others predicted greater happiness whereas spending money on oneself did not, and this pattern was found across all income levels. In other words, even those with little money reported greater happiness when their proportion of spending on others, relative to the self, was greater. Allen R. McConnell