“I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.” – Warren Buffet in his letter to the Gates Foundation.
How do you teach your kids to be financially savvy? How do you raise them financially so that they will make the right decisions for their family?
The simple answer? Don’t spoil them.
I have two little girls at home. They are (as of this writing) 3 and a half years old and almost 9 months old.
Obviously my 9 month old has no concept of money at the moment. She is at the point where she is discovering real food instead of baby food, and it’s a joy to see the look on her face when she likes something.
My 3 year old, however, is starting to learn. She enjoys putting money in her Piggy Bank. She also understands that we can’t buy anything for her right now. Whenever she wants something we tell her that we might be able to get it for her birthday or for Christmas. She is still trying to grasp exactly how much she can get for her birthday or Christmas, though. The other day when we were at the Disney Store she must have picked out half the store and told me she wanted it for her birthday. A daughter after my own heart. 😉
So how do you teach your kids about money at an early age?
Well for starters, my wife and I are going to do an allowance system. When I was growing up I didn’t receive an allowance much because my parents couldn’t really afford it. We are going to start this when my girls are a little bit older because I think it’s a great way for a child to learn how to budget. It will be a perfect opportunity to teach them that if they want something they can get it but they won’t have money for anything else. In addition, it’s a great way to teach them to save if they want something that costs more than they currently have. I want to teach my girls the value of budgetting while they are young so they don’t have to learn about it when they are adults. What better way to learn than with a net underneath you? My daughters will have no bills to worry about with their allowance and no family to provide for. Better to learn how to swim in the shallow end with an instructor then jump in the deep end by yourself.
Another way that I will teach my girls the value of being smart financially is not paying for their college.
You heard (read?) me. 😉
But hear me out just for a minute. If you have enough money you can go to any school you want pretty much. I want my kids to work for the school they want to go to. If my daughters want to go to Harvard they will need to work hard in school and get scholarships. If they are already expecting to go to a nice school with a lot of opportunity because mommy and daddy are loaded, then why would they work hard in high school?
Now does that mean I am not going to even bother saving for college tuition for my girls? No it doesn’t!
I will be saving every penny I can for their college. Depending on where they want to go I will have enough to complete cover the cost of their tuition by the time they go to college. I want to save up at least $150,000 for each of my girls for their college fund.
Now you may be asking yourself what the heck I’m going to do with all that money if I don’t plan on paying for college tuition.
Simple. If my girls are working hard and get scholarships but still don’t quite have enough to go to the school they want, then I will give them a loan.
Yep. An interest-free, government-free, financial institution-free loan.
At the risk of sounding really southern, I’m going to call that a “Blessin’ with a lesson.”
I am blessing my kids with an interest-free loan. If they are having a rough month and cannot pay I can show them mercy. They will not have to worry about collection agency or ruining their credit if they can’t pay for a few months right out of college.
The lesson part comes from still needing to pay it back. They will have to budget correctly to be able to pay the bill each month. They will learn the value of money because they are paying for their own college still. They will learn the value of working hard in school to earn scholarships and offset that tuition bill. They will learn the value of working hard at a job so they can pay off the tuition after college.
That’s how you teach your kids financial indepedence. You can’t give them the world and then not expect them to expect to be handed the world. You can, however, teach them that if they work hard they can attain any goal they set their mind to with hard work and smart thinking.
There is one other advantage to having my kids pay me back. At any point in the life of the loan can I bless my kids again and forgive the debt. If I feel they have learned all they can from the situation then there is no need to continue the lesson. If you know everything to know about basic algebra in school, do you take basic algebra again or do you go on to another portion of math and learn that?
Another option would be for me to use that money and bless the girls with a large gift on their wedding day.
Or I could surprise them with a down payment on a house when they go to purchase one. The possibilities are endless. 🙂