How does money actually work?
Sounds pretty funny when phrased that way. Money is a hard concept to grasp as an adult, but something we shouldn’t shy away from discussing with our kids. As a parent and an ex-financial professional, I believe that one of the most valuable gifts I can give my children is the knowledge and understanding of financial principles. In a world driven by money, I think it’s crucial to equip them with the necessary skills and know-how to make smart decisions that’ll secure a financial future for themselves and their families when they are older.
Here are five financial lessons I plan on instilling in my children:
Understand the Importance of Saving:
Saving money is a crucial habit and the building block to pave the way to financial freedom. I want my children to grasp the concept of delayed gratification and the rewards it brings. By setting goals and saving diligently, they’ll learn to appreciate the value of money and avoid falling into the trap of living from paycheck to paycheck which I’ve seen happen to people I know. Teaching them to save a percentage of their income every month will help them build a solid financial foundation.
Educate the Basics of Investing Literacy
Investing terminology is pretty intimidating for adults. Most people I speak to seem to squint uncomfortably when some of these terms such as stocks, bonds, interest, and dividends, come up in conversations. Or they, comment on how investing is no different from gambling.
This is highly unfortunate because without understanding these terms, one will forever shy away from investing which is so important to setting up your financial future. My seven-year-old daughter often asks me what stocks are because she knows I used to trade stocks for a living. Although it’s a bit over her head, I’ve done my best to explain the concept in a child-friendly manner. I compare a company she knows such as Disney, to her Lego Elsa castle and I explain that stocks are the individual Lego pieces that can be owned by different people. She doesn’t fully get it yet but the seeds are being planted and I know I’ll be explaining this same concept to her in many different ways over the years to come which excites me.
To think that as a teenager she’ll have a good enough understanding of investing to not be intimidated by it once she starts earning a regular pay check is incredible.
Know the Power of Compounding:
The power of compounding is a force that can work wonders over time. Einstein referred to it as the ‘eighth wonder of the world’. By teaching my kids about the concept of compound interest, they’ll understand the exponential growth potential of their savings and investments. They’ll learn that starting early and consistently contributing to their financial endeavors will yield significant results in the long run. Whether through savings or investments, they’ll appreciate the power of compounding and the importance of making their money work for them.
Similarly, they’ll understand that if they don’t invest, then inflation is compounding interest in reverse and will deplete their savings over time.
Encourage a Growth Mindset:
A growth mindset is essential when it comes to financial success. I want my children to embrace continuous learning and adaptability. Encouraging them to seek out new opportunities, learn from failures, and continuously improve their skills will equip them for a dynamic and competitive financial landscape. Understanding that setbacks are temporary and can lead to valuable lessons, they’ll develop resilience and the ability to bounce back stronger from any setbacks.
A Secure Future:
Teaching my children these financial lessons will empower them to navigate the complex world of money with confidence and know-how. By learning how to save money, make use of their investment literacy to compound their savings, and continue their own education through a growth mindset, they’ll be equipped to make sound financial decisions to create a secure future for themselves and their families. As parents, it’s our responsibility to give them the tools they need to thrive financially to lead fulfilling lives.