Introduction:
When I reflect on my path in the world of finance and investment management, I am always reminded of my extraordinary mother. In the mid-70s, she defied norms and became one of the few female advisors in a predominantly male industry. While she didn’t pass down a recipe for chocolate chip cookies, she did impart something far more valuable—a recipe for understanding the ins and outs of blue-chip stocks. These invaluable lessons have not only shaped my own professional journey but also my passion to share financial knowledge with others.
As a financial planner today, nothing brings me greater satisfaction than working with families to secure their future. However, this journey towards financial security should begin right at home, starting at an early age for our children. It is within the loving guidance and mentorship of parents, grandparents, and influential individuals in their lives that our young ones can develop a strong foundation of financial literacy.
Unleashing the Money Magic: Empowering Children with Financial Fundamentals:
The first step in raising financially savvy children is helping them understand the basics of money. By using an allowance, you can teach them how to manage their money wisely.
Let’s approach this in a unique and creative way to make it more engaging for young children. Imagine their earnings as a magical garden that they get to tend and nurture. Explain to them that just like plants need water, sunlight, and care to grow, their money also needs proper attention and planning to flourish.
The first element in their money garden is the “Seeds of Saving.” Encourage them to save a portion of their earnings, explaining that it’s like planting seeds for their future dreams and goals. Just as seeds need time to grow into beautiful plants, saving money helps them build a solid foundation for their future. Teach them the power of delayed gratification and the rewards it can bring.
Next, there’s the “Blooming Budget.” Show them how to create a budget by helping them divide their earnings into different categories, like the petals of a flower. Each petal represents a specific area of their spending, such as toys, books, outings, or treats. By allocating their money to each petal, they can ensure they have enough for the things they enjoy while being mindful of their spending.
Lastly, there’s the “Charity Tree.” Introduce the idea of giving back by explaining that their money can also be used to help others. Let them choose a cause or organization they care about and create a tree-shaped piggy bank or donation jar. Every time they contribute a small part of their earnings to the tree, it grows stronger and healthier, symbolizing their impact on the world around them.
By using this unique analogy of a magical money garden, you’re teaching your children practical money management skills while also nurturing their creativity, empathy, and sense of responsibility. It sparks their imagination and helps them see money as a tool for personal growth and positive change.
Money Essentials: Embracing Value and Budgeting Basics:
One of the most crucial lessons we can teach our children is the value of money and the importance of creating a budget. As parents, we can link money to their efforts, whether it’s through chores, extracurricular activities, or even school work. By rewarding their dedication with an allowance, we help them understand that money is earned through measurable effort. This approach also provides an opportunity to introduce the concept of budgeting.
For instance, if they desire a new toy that costs $20 but their weekly allowance is $10, they must save for a few weeks to afford it. As they grow, we can involve them in more complex budgeting scenarios.
Take advantage of real-life situations to show the importance of money and budgeting. Next time you plan a family road trip, share your travel budget and invite them to participate in decisions about the route, meals, lodging, and activities. This hands-on experience will foster their understanding of budgeting and the consequences of overspending. They will discover that splurging on an expensive meal one day may require choosing a more affordable activity the next.
The Wealth Builders: Unleashing the Power of Saving and Investing:
Once your children have grasped budgeting, it’s time to introduce the concepts of savings and investments. Explain how money can grow over time if saved or invested wisely. Start young children with a piggy bank or a simple savings account to cultivate the habit of saving.
As they grow older, begin to discuss more complex investment concepts like stocks, bonds, and mutual funds. Use examples that they can relate to for better understanding. For instance, if they love Disney movies, explain that buying Disney stock is like owning a tiny piece of Disney. They can understand that their investment’s value can increase or decrease based on how well Disney performs as a company.
You could further illustrate by pointing out how a new successful Disney movie might boost the company’s stock price, while a flop could make it drop. This tangible example helps them understand the dynamics of the stock market and the importance of informed investment decisions.
Mastering Credit: Teaching about Responsible Borrowing:
When your children reach adulthood, teaching them about credit becomes crucial. Start by helping them open a savings account and then a low-limit credit card. This is a great chance to explain that credit cards are tools, not free money, and should be used wisely.
Share your personal experiences to make these lessons more relatable. For instance, I remember when I got my first department store credit card at the age of 18, I kept ignoring a $25.00 outstanding balance, thinking, “It’s not much, I’ll handle it later.” However, this seemingly small oversight caused a blemish on my credit record, which took a bit of time to clear up.
This example highlights how important it is to take even small amounts seriously when it comes to credit. Discuss the consequences of late payments, like damage to their credit score, and the importance of handling all financial obligations promptly. The aim is to instill a sense of financial responsibility that safeguards them from future debt issues.
Fostering a Can-Do Attitude: Empowering Children to Become Young Entrepreneurs:
Encouraging entrepreneurship is a fantastic way for your children to gain a deeper understanding of money. Inspire them to start a small business based on their interests and passions. It could be as simple as running a lemonade stand during the summer or selling handmade crafts online.
By engaging in entrepreneurship, they’ll experience firsthand what it takes to earn money, manage profits and losses, and appreciate the value of hard work. For example, if they decide to run a lemonade stand, they’ll learn about budgeting for ingredients, setting prices, attracting customers, and calculating their profit at the end of the day. This hands-on experience teaches them about financial aspects and also instills valuable skills such as creativity, problem-solving, and customer service.
Entrepreneurship offers a practical way for your children to apply their knowledge of money management and gain a deeper appreciation for the effort required to generate income. It also encourages their independence and fosters an entrepreneurial mindset that can benefit them throughout their lives.
Stepping Stones to Financial Success:
As your children approach adulthood, it becomes crucial to discuss more significant financial decisions. These include choosing a secondary education path, buying a car, or even starting a retirement fund.
One key financial milestone that comes with turning 18 in Canada is the ability to open a Tax-Free Savings Account (TFSA). This event provides an excellent opportunity for a hands-on lesson in saving and investing. Consider gifting your child a small amount of funds to start their TFSA. This gives them a financial head start as well as a practical lesson in handling an investment account.
To enhance the learning experience, guide them through the process of buying their first mutual fund. This could involve researching different funds, comparing their performance, and understanding the potential risks and returns. Such a hands-on experience can provide a deeper understanding of how the financial market works and the importance of informed decision-making when investing.
Conclusion:
Teaching financial literacy to your children is not a one-time event but a continuous process. The seeds you sow today in their minds will bear fruit as they grow older. This financial wisdom will empower them to make sound financial decisions and also equip them with the confidence to navigate through the challenges of life. It is the most valuable inheritance you can provide them, one that will keep giving. And remember, it’s never too early or too late to start. So, let’s start today, because the best time to plant a tree was 20 years ago, and the second-best time is now.
