As we work our way toward debt freedom, we are making it a point to educate our kids about money management. I’m sure at times they get sick and tired of us saying “Save your money”, and “Don’t ever get into debt” but I also know that the financial moves we’re teaching our kids will have at least some impact on how they live their lives as adults. The older they get, the more motivated they are to earn and save money. The more excited they get when their bank accounts grow. I’m excited for their financial futures because they’ve been taught – and will continue to be taught – about money. This is a gift Rick and I didn’t have as children. When we were growing up, it was considered impolite to talk about money. One’s money situation was considered a private issue in most homes, and kids were left to figure out money management on our own.
Nowadays we are blessed to be living in a world where financial education is everywhere. And we plan to be among those who teach our kids some very important financial truths. Here are nine of our favorites.
Financial Moves We’re Teaching Our Kids
1. Wealth is a Choice
I grew up thinking that either you had wealth or you didn’t. You were either rich or poor. It was a luck of the draw thing that individuals had no control over. It sounds silly when you think about it, for those living in America anyways. The lies that broken people believe are prevalent here, but stories of those on large incomes that squander all of it and stories of those on low incomes who become rich are easily found via the Internet. When I think about all of the years we wasted thinking that we were destined to struggle financially, I just cringe. And now that we know better, we are making our own path to debt freedom and teaching our kids the power of choice where their money is concerned.
2. Learn the Value of Value Based Spending
It’s important to us that our kids understand that they need to discover the power of spending on what they value and not on what the Joneses tell them they should value. For years Rick and I were caught up in caring what others thought about our possessions and our image of success. Because we valued what others thought above what we wanted, we spent foolishly and above our means, and it got us into a world of financial troubles.
Recommended Reading: Love Your Life, Not Theirs: 7 Money Habits for Living the Life You Want
As such, we’re working hard to teach our kids that they need to decide what is truly important to them in life, and to spend their money accordingly. The freedom to spend one’s money in a way that adds value to their lives is a powerful tool in the wealth-building toolkit.
Don’t allow your kids to get caught up in trying to keep up. Instead, help them to develop their own dreams about what’s truly important to them, and encourage them to spend (or more importantly, save) in a way that will help them to think big and achieve their dreams.
3. Start Retirement Savings Early
A story that’s always in the back of my mind is a story that Dave Ramsey shares about retirement savings and the importance of starting early. The story basically goes that if one guy saves a measly $2,000 a year for retirement for 7 years starting at age 19, and never puts another dime into his account, he’ll have over $2,000,000 at age 65 if he earns and average of %12 ROI. If his buddy puts away $2k a year starting at age 27, and puts away that same $2k every year until he’s 65, earning that same 12%, he’ll only have $1.5 million.
That is some seriously convincing evidence for the power of compound interest when starting retirement savings early. We’re definitely encouraging our kids to go this route when it comes to retirement savings.
4. Avoid College Debt As Much as Possible
The average student graduating from college with student loan debt in 2015 will have to pay back over $35,000 in student loans, according the latest studies. That’s a whole lot of debt for someone in their early twenties. As such, we’re working to teach the kids to avoid college debt if they can by using the following tips.
Decide if College is Really Right for You
Some kids might not be happy in college. They might prefer a technical job such as an HVAC expert or an auto mechanic. Or they might have solid plans for starting their own business. It’s smart to have a good sit-down with your kids and ask them what they want to do for a career before carting them off the college without a solid plan.
Take Advantage of State Funded College Credits
In many states, kids can take college courses in high school and have the state foot the bill. If your state offers a program like this, take full advantage of it. I know kids in the homeschooling world who have graduated with AA degrees free of charge thanks to programs like these.
Start Saving for College Now
Both parents and kids can start saving for college early. Encourage kids to put monetary gifts and money earned from working into a savings account for later use for college.
Work to Minimize College Costs
There are many options for minimizing college costs for your child if he or she decides college is right for them, such as:
- taking the first two years at an accredited community college
- living at home during college
- taking online courses
- working to get scholarships and grants
The book, Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents
has several awesome ideas for helping kids to graduate from college debt free.
5. Take Good Care of Your Health
The better your health, the less money you’ll have to spend on health care, both now and in the future. We’ve watched as family members suffer both physical and financial hardship due to poor choices in how they care for their bodies. We’re working to teach the kids that optimizing their health by eating primarily whole foods, drinking plenty of pure water and exercising regularly will help protect them not just physically, but financially as well.
6. Make Giving a Priority
“Give, and it will be given to you, good measure, pressed down, shaken together and running over will be put into your bosom.” – Luke 6:38
Of course, this isn’t the main reason we want our kids to be givers, but we do believe giving is highly important. Teaching your kids to be givers will help them in a number of ways.
- It will help them to be mindful of others. Giving to those less fortunate helps kids to remember that there are those in the world that are suffering and need our help
- It will help them to be grateful. Helping the less fortunate makes people realize how very lucky they are to have the things that they have
- It will help them to avoid idolizing money. The more practice kids have at giving money away, the less chance they have at money becoming an idol to them
We don’t tell the kids how much of their money to give away, but we do encourage them to think about others and to pray about how the Lord would have them give as they manage their money.
7. Understand Opportunity Cost
Opportunity cost is the amount of money you are really losing when you spend your cash on stupid stuff. For instance, if you borrow $30,000 for a car on a six year loan at five percent interest, they’ll pay a total of $34,786.80 not including the down payment for that car.
If they’d invested that $483 a month for six years at that same 5% instead of sending it to the loan company, they’d have $41,083. As such, the opportunity (real) cost for that car is $75,869.80, not including whatever the down payment they put on that car and the money that would have come from investing that as well.
That’s a lot of money for a car that’s now six years old and worth a fraction of what they paid for it.
When you’re discussing spending money with your kids, be sure to factor in opportunity cost as a loss factor when doing so.
Recommended Reading: Smart Money Smart Kids: Raising the Next Generation to Win with Money
8. Commit to Always Living Below Your Means
The book The Wealthy Barber, Updated 3rd Edition: Everyone’s Commonsense Guide to Becoming Financially Independent shares the stories of three people working toward figuring out wealth building and money management. One of the things I loved about this book was that even the person who spent all of their money ended up doing okay for one reason: they put ten percent of their wealth away before spending the rest.
There is financial gold in the advice that if you consistently live below your means your financial situation will always be secure.
9. Take Advantage of Continuing Financial Education
Friends, one of the very best gift you can give your kids is to teach them the importance of continuing financial education. Whether it be introducing them to the world of personal financial blogs, giving them a weekly read list of financial books, or having a weekly breakfast date where you share your own financial wisdom with the, a financial education will benefit your kids for decades to come. One book in particular that teaches the concept of money well, and a gift I’d highly recommend for Christmas or Hanukkah, is this financial education book, set in an exciting fiction genre:
When I first read this book I couldn’t put it down. Each chapter left an exciting cliffhanger that left me eager to keep reading, subconsciously teaching me powerful money management skills along the way.
Here’s hoping you’ll make teaching your kids some smart money moves a top priority. I know they’ll thank you if you do.
What pieces of financial advice are you working hard to teach your children?