Want to make sure your little one grows up to be a money genius? It’s time to get to work. You may be thinking, “But my kid just mastered potty training!” However, it’s never too early to start grooming your child into a money managing pro.
From the time Junior starts walking and talking, you can start teaching him some important lessons that will put him on the financial fast track. Teach your preschooler about money by showing her how you use those mysterious green bills to make every day purchases.
When you’re paying the cashier at the grocery store, explain that you are giving the store money in exchange for the items in your cart. Once your little urchin learns how to count, you can really get down to business. Help her tally up the coins in her money bank and discuss how much more she needs to buy that special toy she wants.
Once your kid is a preteen, show him how you balance the checkbook, pay the car insurance and other bills, and deposit checks at the bank. By the time she’s in high school, you should be talking to her about your family budget and investments. You could even check your IRA or 401(k) statement together. Your teen may not fully understand all the specifics right now, but these exercises could plant those first financial seeds.
Make them work for it
If you want your little one to blossom into a true financial planning mastermind, make her work for her weekly allowance. Don’t just hand over a wad of cash because she’s your little angel. If you set that precedent now, your kid will be in for a rude awakening when she enters to real world.
So, if your son insists that he has to have that super-cool Xbox game, don’t immediately hand it over-make him work for it. Tell him if he really wants that game, he’d better get busy mowing the lawn, taking out the trash and bathing Fido.
Although some parents are anti-allowance, many financial experts say that a weekly allowance is often a great learning tool. Your child will learn that she has to work to earn money, and then she has the option to either spend or save that money in whatever way she chooses. Before you agree on a weekly allowance, set some ground rules. Figure out which household chores your child will have to complete each week in order to receive her weekly pay. You can even help her set “financial goals” with her allowance. This teaches her a valuable lesson about saving
Give him a head start
Want to give your kiddo a financial head start on his path to financial security? If you’ve got the cash, and they have some amount of earned income, you may consider making a small monthly contribution to an IRA in his name.
When it comes to retirement accounts, the sooner you start investing, the bigger the nest egg grows. Here’s an example: if you contributed $56 a month from the day your child is born until her 18th birthday, her retirement account will grow to $1 million by the time she’s 65 (assuming an 8% average annual growth).
If you decide to open an IRA in your child’s name, sit down with her and tell her how it works once she’s old enough to understand. This will teach her the importance of investing and saving.
Lead by example
Of course, the most effective way to teach your child about money is to demonstrate smart financial planning yourself. You can’t rightly tell your child how important it is invest and save when your own savings account is empty and you’re busy racking up thousands of dollars of credit card debt.
Your children will almost certainly follow in your footsteps, so with a little bit of encouragement and plenty of financial advice, you can put your kiddo on the road to financial brilliance.