Want to make sure your little one grows up to be a money genius? It’s time to get to work. You might be thinking, “But my son just mastered potty training!” However, it’s never too early to start grooming your child into a money-managing pro. Although your children will probably learn the basics about money in school, it’s up to you to teach them how to manage their finances. Here are a few tips to help you raise a money-managing genius.
Start early. From the time children start walking and talking, you can start teaching them some important lessons that will put them on the financial fast track. Of course, the complexity of these financial lessons will depend on your children’s ages.
Teach preschoolers about money by showing them how you use those mysterious green bills to make every day purchases. When you’re paying the cashier at the grocery store, explain that you are giving the store money in exchange for the items in your cart. Once your little urchins learn how to count, you can really get down to business. Help them tally up the coins in their money bank and discuss how much more they need to buy that fancy toy. When they’re preteens, show them how you balance the checkbook, pay the bills, and deposit checks at the bank. By the time they’re in high school, you should be talking to them about your family budget and investments. You could even check your IRA or 401(k) statement together. Your teens might not fully understand all the specifics right now, but these exercises could plant those first financial seeds.
Make them work for it. If you want your little ones to blossom into true financial planning masterminds, make them work for their weekly allowance. Don’t just hand over a wad of cash. If you set that precedent now, your kids will be in for a rude awakening when they enter the real world. So, if your son insists that he has to have that super-cool, high adrenaline Xbox game, don’t hand it over immediately; make him work for it. Tell him if he really wants that game, he’d better get busy mowing the lawn, taking out the trash and bathing Fido.
Although some parents are anti-allowance, many financial experts say that a weekly allowance is often a great learning tool. Your children will learn that they have to work to earn money, and then they will have the option to either spend or save that money in whatever way they choose. Before you agree on a weekly allowance, it’s important to set some ground rules. Figure out which household chores your children will have to complete each week in order to receive their weekly pay. You can even help them set “financial goals” with their allowance. For example, if your daughter has been eyeing a pair of designer jeans, tell her that she could buy them if she saves up her allowance for a couple of months. This teaches her a valuable lesson about saving.
Give him a head start. Want to give your kiddo a financial head start on his path to financial security? If you’ve got the cash, and they have some amount of earned income, you might consider making a small monthly contribution to an IRA in their name. When it comes to retirement accounts, the sooner you start investing, the bigger the nest egg grows.
Here’s an example: If you contributed $56 a month from the day your child is born until her 18th birthday, her retirement account will grow to $1 million by the time she’s 65 (assuming an 8% average annual growth).
If you decide to open an IRA in your child’s name, sit down with her and tell her how it works once she’s old enough to understand. This will teach her the importance of investing and saving.
Lead by example. Of course, the most effective way to teach your child about money is to demonstrate smart financial planning yourself. You can’t rightly tell your child how important it is invest and save when your own savings account is empty and you’re busy racking up thousands of dollars of credit card debt.
In other words, if you’re going to talk the talk, you’ve got to walk the walk. After all, children generally mimic their parents’ behavior and develop similar habits. So, if you want your child to be financial planning genius, you’ll have to become one yourself. With a little bit of encouragement, lots of love, and plenty of financial advice, you can put your kiddo on the road to financial brilliance.