It is often forgotten that a financial education is vital for children to be certain that they will cope and succeed in their future years.
Sharing Your Financial Legacy
We effectively spend our whole lives working and accumulating wealth along the way. While most of us appreciate the value of discretionary trusts and estate planning, Wills can only help ensure that your wishes are carried out… something is missing here.
Your beneficiaries need a true understanding of how to save, grow and spend money wisely.
In fact, children typically get overwhelmed when they receive a sizeable inheritance and are unsure how to utilise it to its fullest. It’s never too early or too late to begin sharing financial wisdom with your children. If you set aside the time to do so, you’ll have the comfort of knowing they’ll understand how to care for their own financial legacy when the time comes.
It’s also a good idea, when they’re ready, to introduce your children to your financial advisor and other professional partners, so they’ll know where to find expert guidance when dealing with money issues.
Life Skills
Like reading, financial literacy is an essential skill, but unfortunately, it’s not taught in school. That leaves it up to parents to teach the their children and pass on their financial knowledge to ensure the next generation is capable of taking care of the wealth that you have built. At this point, my mind can’t help but turn to the song “Cats in the Cradle” by Harry Chapin. I think it is worth reflecting on the message here before continuing…
My son turned ten just the other day
He said, thanks for the ball, dad, come on let’s play
Can you teach me to throw, I said, not today
I got a lot to do, he said, that’s okay
And he walked away, but his smile never dimmed
It said, I’m gonna be like him, yeah
You know I’m gonna be like him
I’ve long since retired and my son’s moved away
I called him up just the other day
I said, I’d like to see you if you don’t mind
He said, I’d love to, dad, if I could find the time
You see, my new job’s a hassle, and the kids have the flu
But it’s sure nice talking to you, dad
It’s been sure nice talking to you
And as I hung up the phone, it occurred to me
He’d grown up just like me
My boy was just like me
Kindergarten age, or even earlier, is a great time to introduce them some financial basics. This includes the idea that you must work to earn money in order to pay for items and services, as well as the value of different coins and bills. They say that young children often don’t realise that milk comes from cows, so no doubt a similar concept applies to money.
As they get a little older, kids can start helping out around the house to “earn their keep”. If you pay an allowance for these tasks, this is another opportunity to help them go through the motions of saving up for something they’d like to buy and deciding whether or not it’s a worthwhile purchase. The issue of an allowance is a contentious one but, speaking from experience, I’m not sure it really is such a big issue when kids become teenagers and turn into one big money pit!
Anyway, when they become pre-teens and teenagers, there are several other steps you can take. On idea is to help them open a savings account with their earnings from work or helping around the house. Share your own tips on managing a budget and introduce them to the NEED for investing and saving for retirement. Being transparent with your children about the realities and costs of living can go a long way in preparing them for the future.
Taxation
Ever tried to explain the tax system to a child? It’s not as easy as you think – especially when that little gem pops up all the time … “but why”
The lack of knowledge and experience, even in proactive families, is astounding. There is so much to learn and it takes time and learning from mistakes. It’s fair to say that taking a financial hit on a $1000 investment as a young adult is much better than taking a $100,000 hit later on in life when they inherit your estate.
Next Steps
- Write out a budget with your children and explain all of your expenses. This will allow them to understand what a typical adult might have to pay on a weekly basis… It avoids them getting a shock when they move out of home.
- Assist them in investing their money – you might like to open a savings account for them, or show them how to invest in shares.
- Arrange a meeting where they can say hello to your financial advisor.
