Disclaimer: * This may contain affiliate links* I’m not a licensed investment adviser. Also, I’m not a tax adviser and this is NOT tax advice and not investment advice. Please talk to a licensed investment adviser before making any financial decisions. Please talk to a licensed tax advisor before making any tax decisions.
"Do not give your children the stuff that you wish you had, teach them the things you wish you knew. "
Financial literacy is a necessary skill for money management. Since it is a skill, it needs to be taught. As a banker, I have spoken to my clients and friends about the importance of teaching children financial literacy. There are many ways to teach children these skills and it is better to start when they are young.
Children are sponges, and they learn by seeing and doing. However, the parents (you) have to also have some level of financial literacy to even be able to teach them effectively. Although, you do not have to be debt-free. You can teach them by budgeting in front of them, engaging them in the conversation so money stops being a taboo topic in adulthood. Below I have some examples of how to teach them the value of a dollar.
- Have a paid chore list and pay for those completed chores. This helps build a little work ethic.
- Teach your children about taxes and have them ‘pay’ a percentage of their income. This is put aside for them and given to them when they are 18.
- Teach them the importance of saving and learn to treat it as a bill. At this rate have them open a savings account with your children present.
- Open a custodial IRA and have them around for the process. Explain its importance and engage them in the process. Have them set aside a portion of their savings for it.
- Explain stocks, do some research with them and have them choose the purchase of their first one.
Every generation wants their children to have a better life than they did. Do not give your children stuff that you did not have, teach them the things you wish you knew. Knowledge is what has been passed down for generations, this is clear in the archaeological record. We see that knowledge is passed down and it evolves. To this end, teaching financial literacy to your children is an inheritance that is sure to pass on to future generations. The cycle of generational wealth starts with you breaking the cycle of generational poverty.