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Whether you’re a first generation property investor or your family has been investing in real estate for years, you realise the importance of a financial education.
But have you passed this knowledge on to your kids?
Aside from giving them an allowance and helping them understand the concepts of saving and budgeting, what other financial skills are you teaching them?
There are a number of ways you can help your kids gain the crucial financial skills they’ll need for life; the methods you choose will depend upon your own unique family. Here are a few ideas to get the creative juices flowing:
1. Talk about money
Yes, simplistic as this is, it’s important to talk about money with your kids.
However, rather than sitting down for a chat, simply take the opportunity to share your knowledge and experience whenever money comes into the picture. For example, when you’re paying your bills, shopping online or paying their allowance.
Talking to your kids often and whenever the opportunity strikes will help the information to stick better than a long (read ‘boring’) lecture by mum or dad about money!
2. Give them “hands on” experience
If you’re saving up for something special as a family such as a trip to Dreamworld, get the kids involved in the planning and budgeting process.
Not only will the kids love knowing they helped out, they won’t mind missing out on other things because they’ll realise that if they keep on saving, they’ll get the chance to ride the Tail Spin or get soaked on the River Rapids ride!
Bonus: This exercise also helps them experience the benefit of delayed gratification, a life lesson that will help them tremendously throughout their lives.
3. Help them understand compound growth
As children are typically “concrete” thinkers up to a certain age, it’s important that we teach them “abstract” concepts in a way that they’ll understand.
While you could pull up a compound interest calculator and show your kids how their money can really grow if interest is compounded, nothing teaches us better than experience.
You can help them gain that experience and it doesn’t have to take long.
Following are two fun, “hands-on” ways to teach your kids about the power of compounding interest.
Cookie Jar Experiment One
Assuming that your children are earning an income either through odd jobs or a regular allowance, set up a cookie jar for each child to deposit their money into.
Tell them you’ll add 10% each day to their “account” for a month’s time.
Beginning with their deposit of $1 on day one, add 10% each day for 30 days.
- One week (7 days) – $1.95
- Two weeks (14 days) -$3.82
- Three weeks (21 days) – $7.44
- Four weeks (30 days) – $17.54
Quite eye opening, isn’t it? I assure you that it will be to your kids!
Cookie Jar Experiment Two
Here’s where it can really get fun… as natural competition will really add interest to this little experiment.
This one works great for families with two or more kids. It’s the same as the first experiment; however, you offer one of the kids something desirable (such as a bag of crisps or some chocolate) if they delay their deposit for three days.
As you can imagine, at the end of those 30 days, the child who took the chocolate will regret having done so, as their sibling will have much more money in their jar.
Should you choose, you could extend this little experiment for two or more months:
- Child number one at the end of two months (delayed contribution): $229.84
- Child number two at the end of two months: $305.91, showing a difference of $76.07!
This little experiment shows how time plays a key part in growing wealth.
4. Help them learn to make smart purchasing decisions
Part of money management involves making decisions about how to spend our money. Aside from learning the difference between a ‘need’ and a ‘want’, kids need to learn how to be smart consumers.
If there’s a ‘big ticket’ item your kids really want to purchase, such as the latest video game or shoes that are above your clothing budget, help them to find the best possible deal by shopping around.
When you encourage your kids to take their time researching what they want to buy you help them to significantly curb impulsive purchases.
5. Set goals
Let your kids see you actively setting – and accomplishing – your goals, whether they’re financial or not.
Showing is always much more powerful than simply telling, whether you’re talking about kids or adults… the knowledge simply sticks better when we see it in action so make sure your kids know the goals you’ve set and share in the celebration when you meet those goals.
Help them set up their own goals, setting up milestones along the way to encourage their efforts. To avoid unnecessary frustration or disappointment, make sure their goals are in alignment with their age and ability.
6. Learn the truth about types of debt
As a property investor you’re keenly aware of debt, yet you also understand the different types of debt. Pass on that hard-earned knowledge to your kids.
7. Choose your resources wisely
Our kids these days are very technologically savvy which is not always such a good thing. Help them to understand that just because they “read it on Facebook” that it doesn’t make it true.
Teach them to choose their information – especially information that will impact their lives – from trusted sources, confirmed multiple times.
8. Let them help you invest
As much as you can, let your kids see your investing activities up close and personal. For example, if you’re deciding whether a property is viable, let them help you run the numbers. If you’re a renovator and do some of the work yourself, get them involved too, giving them a ‘salary’ for their efforts.
9. Teach them smart use of credit
If your older children are earning an income, have learned how to manage that income and are ready to learn more financial skills, teach them how to use a credit card wisely.
Once they hit 18, they will certainly get their fair share of credit card offers, so help them develop the discipline to use credit wisely while they’re still at home.
Should you choose to allow your child to get a credit card, make sure they understand all of the terms and conditions in connection with that card. They need to understand:
- That if they pay the entire balance they won’t have to pay ANY interest.
- If they pay only the minimum, interest is added each month on the balance (plus any new charges).
- If they pay late they will incur penalties on top of the additional interest.
- Pulling cash from the ATM incurs interest charges, often much higher than regular interest charges.
Now, while they’re still at home, is the best time to help them learn to use credit wisely.