If we do not teach our children new money skills beginning in kindergarten and adolescence, they are likely to make huge financial mistakes as adults.
At 67 years old, one of my biggest parenting regrets is that I didn’t teach my kids about money. (It’s ironic, given that my entire career has revolved around personal finance.) My children are all grown up and have children of their own.
Yet if I could turn back the clock, these are the things I would have taught them when they were young:
1. You may have to wait to purchase what you desire.
Children must learn that if they want something, they must save up enough money to get it on their own.
The difficulty is that we all want the best for our children, so a common temptation for parents is to offer their children everything they felt they lacked as children. Is there a trampoline in the backyard? Check. Every season, new clothes? Check. Every weekend, a new toy? Check.
If that’s your manner, you can wind up with a youngster who is entitled and expects fast fulfillment. Patience is essential. Instead of instantly purchasing a $20 gift for your child, have them save $5 per week for one month. They will love and enjoy that toy even more because they worked so hard to obtain it.
2. The one who dies with the most toys is not the victor.
We all enjoy having possessions. Yet, expectation is a terrible adversary of money management. Much of how “the other half lives” is depicted in glossy magazines and on social media. Their lifestyles are praised, leading many of us to believe that life is all about working hard — only to be one of the world’s “have-mores.”
Yet assets do not guarantee a prosperous existence. The experiences and people — the things that money cannot buy — are what genuinely make you affluent. In my opinion, “real riches” are what remain after you have lost all of your money and goods.
3. The sooner you save, the faster your money can grow through compounding.
To get rich with compound interest, you need more than just money; you also need time.In fact, given enough time, compounding (earning interest on both the money you’ve saved and the interest you earn) is so powerful that Albert Einstein dubbed it the “greatest powerful force in the world.”
Encourage your children to begin saving and investing as soon as possible, and they will be more likely to protect their financial future.
4. Put more focus on passive income.
Not all earnings are created equal. Some streams are linear, whereas others are not. A job provides you with linear revenue. You may work for an hour and be compensated every other week for your efforts. That’s all. If you do not show up for work, you will not be paid.
Passive income occurs when you work once but continue to be compensated for labor you no longer do. Having a passive income, whether you work or not, is the way to become wealthy.
This is how real estate investors think: they work long hours to build up a deposit, then invest it. Their money is now “passively” working for them in the form of capital growth and rental income. This is an excellent return on their investment.
5. “Debt today equals misery tomorrow.”
When we are young, we tend to think about what will make us happy today rather than what will make us happy tomorrow or ten years from now. Because of this, many people end up with credit card debt or don’t save enough for retirement.
Teach your kids that owing money now will keep them from making money in the future because they are giving up money they don’t yet have.Reducing your debt responsibilities when you’re younger will give you more control over your finances later in life.
6. Luck is the result of hard work.
Many of us want to attribute other people’s success to “luck.” Perhaps those successful individuals were “in the right place at the right time” or they “knew the right person.” Nonetheless, successful people work hard to reach the peak of their chosen pitch or effort.
You’ll be far more likely to achieve great things, including financial freedom, if you can find something you’re passionate about and make a living from it.
Michael Yardney has written eight best-selling books, including “Rich Habits, Poor Habits” and “How to Build a Multimillion-Dollar Property Portfolio.” He also works as an investment consultant and hosts the Michael Yardney Podcast.