Making healthy choices regarding money is key to prospering in life, and this is something that kids can already start learning. We talked to Behavioral Economist, Financial Intelligence Quotient expert, and founder of The FQ Mom website Rose Fres Fausto to find out more about how to teach your kids to become financially savvy. Check out her tips!
The first basic law of money is “Paying Yourself First”, which means prioritizing setting money aside for savings.
“For every angpao/cash gift, and allowance they receive, they should be regularly saving and investing a percentage of it,” says Rose. “We used a minimum of 20% when our kids were very young. They have kept the habit and are now observing a higher savings ratio.”
“Encourage them to earn from their core competencies, and their gifts. Are they good at baking, selling, teaching a skill? Challenge them to earn from it, especially during summer vacation. Teach them the value of passive income. This is best done via equity index funds that they hold for the long-term,” says Rose.
Another basic law of money, according to Rose, is “Make your Gold Work for You” which involves the concept of delayed gratification.
Kids are too young to understand that sometimes we can’t spend on certain items in an instant, like a new toy. But instead of saying you don’t have the money for it, you can simply explain that you are saving money for a later time or for something else that is likely more useful. Teach them one of Rose’s guidelines, “Buy luxury only when you can afford 10 pieces of it.”
While they’re young, this is the best time to start teaching your kids about opening a personal savings account with a bank and how to use it. Rose recommends encouraging your child to invest his/her allowances, and money gifts to “higher yielding instruments” such as investments or stocks.
Time is your biggest ally when it comes to investing and saving. You can show them how much they can accumulate if they start saving now. If they become good at dealing with money at a young age, they can continue being better at it as adults. Plus, they also gain a tool to help them lead comfortable lives in the future.
Your kids will emulate your habits, so always lead by example. Make sure to have a healthy relationship with money yourself so you can pass financial well-being on to your kids.
“Right from the start, parents should be the living examples of how to deal with money. When parents are aware of what they truly value in life, they can use them as a compass in the way they deal with money,” says Rose.