In return for the odd vivid drawing or card, my children get to hear the wisdom I’ve accrued in 44 years on this planet. Naturally, my wife and I share the job of teaching our offspring how to have maximum fun when they’re young, while gradually preparing them for the demands of adult life.
As a financial writer, I’ve taken great care to give my children insight into the world of money, by introducing them to concepts such as wages, taxes, borrowing, investing and so on. Here are six of these vital lessons for other parents to pass on to their young ones:
1. You can spend it only once
The earliest lesson I taught my kids was how to budget. Armed with £10, an excited child aims to spend this tenner in so many different ways. However, parents must explain that this cash will only go so far and can be spent only once. Learning this lesson at an early age is a great way to become a careful consumer.
2. Work equals money
When our children were very young, my wife and I gave them each pocket money of £1 or £2 a week. These days, they are both old enough to do chores, so there is no ‘free’ pocket money. Instead, they have a list of daily chores with varying rates of pay. Through tasks such as tidying up, cleaning out their guinea pigs and laying the table, our kids can earn up to £3 a week. This routine helps them to learn that there is no such thing as ‘easy’ money.
3. Lotteries are for suckers
I’ve also warned my kids that there are no ‘get rich quick’ schemes in life. To become successful and wealthy almost always requires a lot of hard work.
For example, some adults see the National Lottery and EuroMillions draws as a potential route to riches. In fact, these gambles make us poorer as a nation, as we spend almost £6 billion a year on tickets, yet get back just £3 billion in prizes. Thus, like so many get-rich-quick schemes, lotteries are for suckers.
4. Credit means debt
I’ve explained to my children that adults can raise their spending by borrowing money from banks and then paying it back later. However, I’ve also spelled out that getting into debt costs you plenty, thanks to interest and other charges. Also, when you’re in debt, compound interest is your enemy, because it relentlessly increases the amount you owe. That’s why I swap ‘credit’ with its true meaning: debt.
5. Start saving early
Since they were old enough to comprehend money, I’ve been teaching my son and daughter of the joys of saving. As a result, both have the ‘savings bug’ and know that the best way to get something you want is to save patiently.
This year, my son has been saving for a PlayStation 3 console. Thanks to recent cash gifts for his birthday, he now has enough to buy it. Please don’t tell him, but I ordered it this morning!
6. Buy great businesses
Finally, I’ve shown my children how to build long-term wealth through investing in great businesses by buying their shares. Like celebrated US fund manager Peter Lynch, I say, ‘A share is not a lottery ticket. It is part-ownership of a business.’
As a result, my son invests in a low-cost FTSE 100 tracker fund, in order to profit from the success of the UK’s 100 largest listed firms. Also, my daughter owns shares in a few carefully chosen companies.
Lastly, my wife and I take time to show our children that not everything enjoyable in life costs money. We also warn them that money doesn’t make you happy, but it does make your future more secure. Thus, always take great care of what money you do have!