How to raise financially responsible kids
“The first generation makes wealth, second generation spends it, and the third generation blows it!” This is a popular saying among wealth advisors. Less than 5% the general population inherits wealth from their grandparents, even though we’ve all heard the saying “a good man leaves an inheritance for his children’s children.”
While there are a number of theories on why wealth fades before it gets to the third generation one of the key factors is obviously poor financial management. So I ask when is the best time to start learning about how to manage one’s finances and again the experts say like all things in life an early start is a good head start.
So here are a few tips on how to raise financially responsible children:
1. Teach them the ‘Value of Money’
Help your children understand that money is a medium of exchange and that ‘something of value’ must be given to obtain it. Hence they must give ‘something of value’ e.g. their time, good behaviour, good grades, dedication or hard work to earn it.
Also teach them not to give money away if they are not getting ‘something of value’ in return for their hard earned money.
You may have to explain further that ‘something of value’ can extend beyond material things like charity (giving money to buy others help).
2. Teach them how to Earn
Now that your children know that money must be earned by giving ‘something of value’, teach them how to offer ‘their value’ in exchange for money. You can do this by setting them chores around the house and setting them personal goals to achieve in return for pocket money. Also encouraging them to sell their skills. E.g. teaching dad how to use his new phone for a fee. This is sure to help develop the entrepreneur within them at an early age.
3. Encourage Negotiations
Encouraging children to develop their negotiation skills earlier on in life helps prepare them for the real world. This is especially important for parents raising daughters. Women tend to shy away from asking for what they really want in life but if you are able to help them develop this skill at home it will work out to their advantage. Make their pocket money a discussion always open to negotiations to help develop this skill.
4. Teach them to Save
Teaching children to save money at an early age, helps them develop their ability to prepare for unforeseen circumstances. It shows discipline when a child is able to save and this character trait helps develop other similar traits like the ability to plan, handle stress, respond to reason and show self-control. All key skills necessary for a successful individual in life.
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