Whether you have children on your own, grandchildren or (adopted) nieces and nephews or plan to have children at some point in the future, you can play an important role in educating these children financially, especially taking into consideration how little most schools incorporate personal finance into their curriculum.
Save money for your children
The first thing to do, is to set aside some money in a savings or investment account (again it doesn’t matter how much or little) so you can start growing some money for your children. Not only will this once they are a little older give you a great topic to discuss with them to show them the power of compound interest, it also makes for a great 18th, 21st or wedding gift.
The earlier you do this, the more time the money has to grow. If you are lucky enough to live in a country that has a child benefit scheme consider setting this aside. The average of about $75 per month would grow to a total of $32.500 assuming an average return rate of 7% in an investment account after 18 years (not adjusted for inflation)…
Maybe you cannot survive without the extra child benefit that you are receiving and therefore cannot invest all of that money. But what about half of it? Or even just $25 a month? $10?
Teach your children about money
Secondly start thinking of ways to educate your children on the value of money. Some ideas include:
- Give children a small amount of pocket-money from an early age on to get them to plan how they want to spend it and how to save up for a bigger purchase. It teaches them the value of saving, planning and prioritizing.
- Consider some type of “savings match” or interest you give children for every dollar they save if they have not yet got a savings account. This could be done monthly by them showing you how much they have saved and after you count it together you give them a certain amount of interest or match their monthly contribution.
- Give each child three jars: one for spending money that they can always use, one for savings to which they assign a specific savings objective and one for charity that they use to donate to a charity of their choice.
- Have a chores list with things they can do in or around to house to earn some extra money. You can have a maximum amount per week or month they can earn if you want to limit how much to pay them. In this way they learn that jobs are what give you money.
- Teach children about debt and how this is expensive in the long run. The best way for them to learn this is by giving them a small loan for a purchase they would like to make and charging interest on it. A tough lesson to learn but it will be a very valuable lesson. Even if they end up paying $5 on a loan of $10, those $5 will teach them a life long lesson on how interest and compounding interest on a loan will ultimately be a killer to their personal finances.
Today’s challenge is to both start setting aside money for your child (consult your budget to see how much you might be able to set aside) as well as talking to your partner on how to start teaching your children about money consciously. Implement one or two ideas based on their age and interest. Make sure to check on Facebook or elsewhere once you’re done.