Childhood may be a good time to teach kids about the value of a dollar, and it isn’t too early to begin teaching the next generation about finances and exchange traded funds (ETF). There are simple ways to get your messages across and you may even teach yourself new lessons in money.
Million Dollar Journey highlights eight ways that adults can get through to their children about finances and help set themselves up for a sturdy future. This may even appeal to those adults who are still children at heart, because it’s also never too late to begin learning:
- Be a model of generosity. If you donate, explain this to your children and tell them why. Let your kids see you being generous with money and get them thinking about the needs of others, and how to make a difference.
- Language. Rather than saying “We can’t afford that” answer back with a “Sure you can have it. Have you saved up for it?” Do not complain about finances in front of kids.
- Allowance. The main issue is how much to give, and that you are consistent with it. First grade is a good time to start.
- Clothing allowance. Around age 12 start letting them earn enough for clothes, magazines, etc. That way, there is no argument – they can save if they want something.
- Interest bonuses. If they save so much, give them $2 or so in interest to demonstrate the rewards of saving.
- Mistakes. Of course there are boundaries, but the fact is that kids must make mistakes to learn how to deal with their decisions.
- Banking lessons. Set up an appointment and let the kids tour the bank so they understand the system and the idea of savings.
- Compound Interest lessons Books and online calculators can inspire a change of thinking about the real value of saving over time. If you open up investments or brokerage accounts for them now, while they are young, explain what you are doing and why.
A broad-based ETF can be a good idea for long-term safekeeping and they can track and manage the investment online to witness the magic of compounded interest.
A few years ago, I took my own kids to Washington Mutual and helped them set up savings accounts in their names. It’s been fun going to the bank with them and watching them make deposits when they get birthday money or save up from their allowances.
At home, they see me on the computer, looking at stocks and charts. The joking at dinner time is centered around ETFs, as my kids groan “Dad…everything is ETFs.” With this being a great long-term buying opportunity, we closed the savings accounts and opened brokerage accounts at Charles Schwab. Now my kids are invested and learning about how the markets work. It’s a low-cost lesson.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.