Whether you are training up young kids or grandkids in their understanding of money or needing to prepare your older children for an inheritance, it is a critical responsibility for one generation to equip the next to steward resources well. Join James as he shares the stories and wisdom he has had the privilege to glean by watching families struggle with this issue.
Preparing The Next Generation To Steward Wealth
It’s up to us, as parents and mentors, to make sure that the next generation is equipped with the knowledge and skills necessary for financial success. We must teach them how to budget, save, invest, and use money responsibly in order for them to be able to build a strong financial foundation.
What’s The Hardest Thing About Money?
Some people think that the hardest thing about money is budgeting it, while others feel that understanding taxes and investing is the toughest. In reality, the most difficult part of money management is having it.
It can be challenging to just let money come in and resist the urge to spend it all. We all want to experience pleasure, and money is a way to do that. However, the greatest pleasure in life often comes from having enough financial resources to ensure and preserve our future.
Where Do Parents Go Wrong?
As parents, we want to protect our kids from making financial mistakes. We block their falls as much as possible in an effort to shield them from the challenges of adulthood, but are we doing more harm than good?
By trying to safeguard our kids from the realities of life, we may be doing them a disservice. This mindset often comes with the blaming and shaming of our children when they make mistakes. This can also lead to a power struggle and perpetuate dependency.
What Experiences Do Children Need To Have?
Giving your child access to money can have a powerful impact on their economic outlook. The experiences children have with money can shape their financial literacy, habits, and attitudes for years to come. Allowing your children to experience Buyer’s Remorse and The Miracle of Compound Interest.
Buyer’s remorse is one of the most important money experiences to teach children. When they understand the consequences of their purchases and the importance of financial planning, they will be more likely to make conscious decisions.
Similarly, teaching the concept of compound interest is an essential money experience for children. By understanding how interest can accumulate over time, they will be more inclined to save and invest wisely in the future, whether it be in the stock market or other investments.
The Bank Of Mom And Dad
One useful tool for teaching kids about managing their finances is what we like to call “The Bank of Mom and Dad.” For parents with young children, it’s best to start as young as four years old. You want to give them autonomy over their money, but also provide guidance and structure.
“The Bank of Mom and Dad” can teach your kids about compound interest through parent-paid interest. For instance, they can choose to save a portion of their allowance, which can earn interest over time if they choose to keep it with you. You can also match their savings with a percentage of your own, giving them an incentive to save.
You can further use this tool to teach your kids about non-cash transactions, which are prevalent in today’s digital age. You can give them a debit card to control their expenses, teaching them about budgeting and online transactions. You can also set up an online bank account to monitor their spending and help them learn about budgeting.
Instead of penalizing our children for money mistakes, we need to focus on helping them learn from them and prepare them for the future. We want them to have crucial money experiences while they’re young and the stakes aren’t that high.