Whether your child is just a toddler, a teenager, or a young adult in college, it’s difficult to even think of teaching your kids about personal finance, especially when sometimes you’re not even sure yourself. The best way to learn is by teaching. So here are the seventeen essential things you must convey to your kids in order to instill the idea of becoming financially independent. Who knows, by teaching these essential things, you might learn a thing or two yourself!
1. Tell them not to depend on a traditional job as the only means of securing the future.
It might be difficult to say this to your kids if this is what you’ve been doing all your life, but times are changing and it’s becoming increasingly clear that we must learn to adapt and find multiple streams of income, and even embrace entrepreneurship. The traditional “one job till retirement” model is not working anymore, so get out of denial fast and let your kids learn about entrepreneurship.
2. Stop telling them that buying a house is the safest form of investing.
This is just not true. There are so many ways to invest your money that are actually safer than buying a house. (Roth IRAs, index funds, lifecycle funds, high yield savings accounts, for example!) Educate yourself about the stock market and these forms of investment if you don’t know already, and prepare your kids to go down the correct path when it comes to investing.
3. Teach them how to save money and pay bills on time by automating their finances.
Experts on personal finance will agree with me on this one, (including one of my favorites, Ramit Sethi of I Will Teach You To Be Rich.) Automating your money and bills is one of the best ways to keep your finances in top shape, earn stellar credit, curb overspending, and–best of all–not stress out about paying bills on time. Automation means you siphon your income into various channels each month (or each week) such as into a high yield savings account, an investment account, a credit card, and finally all your bills. This method forces you to “pay yourself first” by saving and investing, and then pay all your bills on time–leaving you with your true budget amount to spend for other things. If you don’t do this already–start now. Why not learn by teaching your kids about it first?
4. Remind them of the importance and perks of having good credit, and show them how to do this–the right way.
Most Americans do credit cards the wrong way. The most important way to maintain good credit is to stop paying the minimum every month. Pay your balance back in full at the end of the month. If you can’t do this, it means you are living above your means, and that is no way to live. You can’t get financially independent by living above your means. Teach your kids how to use a credit card the right way, and tell them to think about paying it back in full at the end of the month whenever they want to pull out their credit cards to buy something. Credit cards, if used correctly, offer a tremendous amount of perks such a free flights, insurance, and even fee reductions, but only if your credit is in tip-top shape.
5. Help them set up high yield savings accounts, and a no-fee checking account.
Don’t use the brick and mortar banks anymore. The key here is online banks. The lower overhead of not having physical buildings means that these online banks don’t have ATM fees and overdraft fees, and they certainly don’t charge you for a checking account–even if you don’t have direct deposit! These fees are such a scam. Stop paying useless fees to the banks. You can also start by setting up an online, free checking account for your kids (when it is the right time), and help them set up a high yield savings account online as well, so they can have fun watching their money grow. Contrary to popular belief, money does grow–if you let it. My favorite online checking account is the Charles Schwab Bank High Yield Investor Checking Account, and my favorite high yield savings account is American Express Personal Online Savings Account with a current steady yield of .85%.
6. Show them how to invest in the stock market with diversified life-cycle and index funds, and help them set up a Roth IRA as soon as they’re able to.
What? You don’t know how the stock market works? Well, neither do most experts! If you don’t know how to invest yourself, you should learn. But don’t worry–it’s pretty easy. There is such a thing as automatic investing, and it’s not about picking stocks. It’s all about automatic diversification of stocks. You need to stop being afraid of investing. There are many great resources to learn about this now, so start. Even if you are not doing it, your kids should as soon as they are old enough. There are some very easy and safe ways to invest in the stock market. Life-cycle funds automatically diversify your investments between stocks and bonds based on your age, while index funds offer a bit more customization. It will take one weekend to learn more about all this, and then you can teach your kids.
7. Show them how to live within their means by setting a good example first.
Stop buying things you don’t need and accumulating crap. Kids learn by osmosis. If they see you doing something, they will copy. You need to show them what smart buying is all about. First of all, have a budget and stay within it. Your budget can include calculated indulgences, of course! The point here is: you can’t teach good personal finance if you don’t at least try to practice it yourself.
8. Encourage them to learn marketable skills with the online resources available, such as coding and web design.
Encouraging your kids to learn useful skills is one of the best ways to secure their financial future. Professions that will be beneficial in the future are not what parents have traditionally thought fruitful, such as studying to become doctors and lawyers. It’s actually more beneficial these days to learn creative skills such as design, art, and computer programming (yes, programming is quite creative.) Creativity is not so easily outsourced. Start with online schools such as skillshare, code academy, skillcrush, and code.org.
9. Open your mind about the possibilities of education–the world is changing and so is the university model.
It may not be 100% beneficial for the next generation of kids to all go to traditional colleges and get formal education. MOOCs (massive open online courses) are changing the way we view traditional education, and so is the abundance of student-loan debt enslaving the whole millennial generation. Your child’s generation doesn’t need to go through this. There are better ways!
10. Encourage the use of social media, but also teach them how to edit themselves online.
Personal branding online these days is essential for creating wealth. Kids are well prepared for this if you teach them how to curate and edit what they say and how they say it. Remind them that their online persona cannot be erased, and they need to avoid embarrassing mistakes. Each person should have a message to the world–help them start developing it. They may only be telling it to their friends now, but in the future it will be to co-workers, clients, bosses, and investors. Teach them how to manage their public image instead of completely discouraging the use of social media. It will be a necessary tool for the development of their careers later in life.
11. Instill the fundamentals of leadership into your child, even if they’re introverted.
Leadership capability is a pretty accurate indicator of success in an individual. Leadership skills include proactivity, responsibility, empathy, creativity, vision, and public speaking skills. Don’t underestimate the importance of teaching these types of skills, even if you believe your child is an introvert. Some of the best and most influential leaders are self-proclaimed introverts. Introversion doesn’t mean they won’t be natural leaders.
12. Be creative with the allowance system. Don’t shield them from the process of earning and losing money.
Someone once said average people think emotionally about money while rich people think logically–like a puzzle game. Talk to your kids about money–don’t make it a taboo subject. Show them how to think about it logically, and make their allowance and wealth accumulation into a game. For example, create a good incentive: “If you make ten dollars selling lemonade, I will double it or triple it.” Encourage working for money using creativity, so that it is not always associated with exchanging time for money but associated with creativity instead. Help them create something, and sell it. Don’t only teach them to sell, teach them to leverage their skills to create something of value. The lemonade stand lesson is so important. These days, it can also be done online (i.e. set up an online shop, help them create a blog.) Tell them to use their allowance to create more money, instead of spending it all away.
13. Tell them stories about the famous entrepreneurs and game-changers who made a difference.
It is important to plant the seed of inspiration. Growing up with a vision–however small–is what differentiates the ones who make it big from the average ones. If your kids get inspired, they will want to create something of value and importance in the world as well. Kids are idealists of the best kind, with beautiful imaginations of endless possibilities. Don’t block this, enhance it by showing them the world of possibilities, not the world of fear, stability, security, and living only for yourself. Give them something to dream about, and someone to help.
14. Don’t just let your kids consume–let them see the behind-the-scenes, the ‘making of’s, and the budgets behind the movies and games they love.
Your kid loves games and movies? Well, that’s a really good thing! These industries are creative powerhouses. You can use this to your advantage. Kids love to see how things are made, the behind-the-scenes, how things are put together. Capitalize on their love of games and movies by showing them the processes behind how these creative projects get made. Show them documentaries about the sets, the teams, the artwork behind it all. Take them to studios or movie sets, find YouTube videos explaining how their favorite games are made, the technologies behind them, the budgets. Before you know it, they will be interested in the craft behind everything instead of just consuming things mindlessly. This will give them so much more to work with when deciding on what they want to do with their lives.
15. Don’t assume your kid knows what they want, but don’t force them down a career path that you think is right either.
Your kid will probably need time to figure things out. But don’t assume you know best. Encourage their natural talents, interests and habits, and let them know it is OK to make money by doing what they love. This is how every successful person is doing it these days. Don’t judge them by your own measures of what it means to be successful. Take a good look at your own advice and life and see if 20 or 30 years ago you would have taken the same path. Maybe, maybe not. Figure out what their strengths are and help them craft their own path to riches–even if it goes against your fundamental beliefs about making money. The game changers of today’s business world are authentic creatives doing what they love. Don’t let you kids fall behind.
16. Stop teaching your kid how to survive–teach them how to accumulate wealth.
Don’t teach them to be afraid of accumulating money. Wealth can be used to do good in the world. We need more philanthropists and innovators in our world. There are so many important problems to solve and places to go. If everyone settled into living a safe life with a steady job, there would be no advancement. Don’t forget that safety is only an illusion and no amount of “job security” can keep your kids safe. They have a chance to learn from you now–not the hard way by losing a job or by being in massive debt.
17. Forget the lottery mentality. Show them how to take action toward their dreams.
The road to riches is paved with persistent, accumulated actions. Sometimes even mini-actions. Don’t tell your kids their dreams are too big. Don’t tell them the only way to do that is by winning the lotto. It’s simply not true. Help them take the first steps by having 100% faith in their wildest dreams and showing them ways to start on that path.
