What are you teaching your children that will best prepare them for a successful adulthood? To be polite and say thank you? To believe in themselves? How about that if they save 15% of every check they ever earn, they will retire a millionaire (1). Preparing your child to handle the financial matters that they will face as adults doesn’t require a finance degree from Harvard. Below are some money lessons they can start at an early age.
Lesson #1: Life isn’t one big shopping spree
I think we have all experienced the grocery store tantrum when that 3-year-old just has to have the cereal with the cartoon character on the box. You can work with your preschoolers to understand that you go to the store for very specific items. Every trip to the store is not an opportunity for them to get a present. It is a lesson all ages could work on.
Lesson #2: If you really want something, it is worth waiting for
Teach your child about setting purchasing goals and saving for those goals. Have you given them a piggy bank yet? Every time they earn money or receive it as a gift, have them save at least 10% towards their goal.
Lesson #3: It is important to spend wisely
No one has an infinite amount of money so spending involves making choices. By the time your child is in elementary school, have them start to think about spending money on things they will still value in a couple of days.
Here are a couple ways that you can help your child to develop money skills.
#1 Give your child an allowance. You could use their age to determine their allowance amount. For example, my 7-year-old receives $7 a week. Make them understand that you take care of their needs and they use the allowance for their wants. An example of this would be when we went school shopping. I paid for my son’s school supplies that were on the teacher’s list. He really wanted a cool pencil box not on the list so he had to use his own money for this. It made him think about how badly he really wanted it.
#2 Give them a birthday budget. Determine what you can afford for your child’s birthday present and party, then let your child determine how they want to spend it. Would they like to have the entire amount spent on a gift for themselves and forgo a party or would they like some combination of the two? Having a little skin in the game, really gets them thinking about spending wisely.
During these early years, the overriding idea to teach your kids is that there is a difference between the things we want and the things we need. Giving them a little bit of responsibility at an early age will help them to understand this and set them up for a lifetime of healthy money habits.
(1) Assuming that they work full-time for 40 years earning an after-tax salary of least $42,000 per year, and that their savings earn an average annual return of 6% after fees.
A collaborative law colleague recently wrote a lovely piece in the Boston Globe describing his reasons for leaving his litigation practice behind and representing clients only in alternative dispute resolution processes. His article resonated greatly with me. I too left behind a litigation practice to enter the world of peacemaking. While not an easy choice at the time, I look back six years later and realize that these years have been the most fulfilling of my career. I have not stepped foot in a courtroom in almost six years.
I am thankful for many things in my current “out of court” career, but here are just a few:
