This is a vital subject, but most parents tend to leave it till after the ‘birds and bees’ talk and in some cases, not discussed at all.
Growing up in New Zealand (which, let’s face it is remarkably similar to growing up in Australia), and looking back on my childhood and teenage years, I’ve come to realize that my parents had life pretty good. In New Zealand, unlike many other countries of the world, life is relatively reasonable and, to a great extent, accessible. New Zealand doesn’t have the very poor nor the well off – the majority are middle-income people or families.
Back then (and I’m only talking about 20-30 years ago), there was no real need to learn how to invest as the world didn’t truly value the way money would help in all sorts of ways. The real choice was about lifestyle – but not in the way we now look at and value lifestyle.
Today the world has changed. Life has become faster, mainly due to our high use of technology. Think about this: my parents have seen air travel go from being a complete luxury to almost everyone being able to afford to fly (and in some cases, it’s cheaper to operate than take the bus or drive!). And my grandparents: they grew up with the horse and cart!
Heck, the first computer I used was an old Apple, which a selected few of us at school were allowed to study with. I remember it had a green screen and we had to learn a Basic language to program in! These days, all filters are in color, and no one learns ‘Basic.’
At school, I took several subjects you’d think would teach me life skills, such as:
o Accounting: but I wasn’t shown how to budget
o English: taught me to write for pleasure, not a detailed report on the progress of the company I work for
o Math: sure, it taught me how to count, and calculate how to fly to the moon … but not to understand why the graph changes are essential to a business
Fortunately, technology has moved on, but sadly the education our children receive at school had not caught up nor improved from when I was a youngster.
When I left school, my parents could not even suggest how or why I would buy a house; information was hard to come by, and their recommendation was to see a lawyer, and he would explain this to me! Data is now freely available on the web. But, who can you trust? There are so many conflicting pieces of advice it’s next to impossible to work out who is right, who is wrong, and who you should trust.
I believe a child will get the majority of their real information from their parents, right or wrong. I urge you not to rely on others; family, friends, teachers, lawyers, accountants, or financial planners; to give your children information and advice about what to do with their lives. As an example, studies have shown that the majority of parents who have gone to University will have children who will do the same. Likewise, a lot of self-employed parents will have children who will become independent.
So, as a parent, where do you start? My advice: passive income is the way to go. Passive income is income you do not have to keep working for: interest on your savings account; rental on an investment property; dividends on your share portfolio – these are all forms of passive income.
I love to start by getting the kids to think about and write down their goals or dreams (as you have read or heard before people who have a list of targets are likely to achieve more in life than the ones who do not!). By writing down their goals or dreams, they’ll start to understand why they do things (like saving). Having a goal or dream gives purpose to what they do to achieve the goal.
Next, work out the steps to achieve the goal by working backward. For example; if the goal is to win a local golf tournament, the second last step is to practice putting. The stage before this is to practice chipping. The scene before that will be to practice driving, and so on. So, as you can see, the plan will come together pretty quickly.
Another example could be purchasing a bicycle in November at the cost of $350. Sit down and work out with them how much they’ll need to save each month and how much of their pocket money, or income from their paper round or whatever it is they do to earn some money, they’ll have leftover to spend on other things. This is, effectively, a budget.
I strongly recommend and urge you to teach your children how to budget. Starting with a specific and focused goal that they want should help get them motivated to learn. And, don’t forget to include the passive income from interest they will earn on their savings.
Teach your children about compounding interest and how they can benefit from putting in the work, saving, and then having the money work for them, creating additional income, passive income. This naturally leads to investments – looking for the opportunity to earn passive income. Remember, kids learn from their parents, so you’ll have to get a good grasp of this subject yourself to teach them.
My goal with children is to open their minds to the fact that there are many ways to make money. Not to look for one big payday, but to have many forms of income which together equal a high monthly payday. A payday that they do not have to work for over and over and over. To live the life they deserve because money is not an issue. And we all know how many problems can be caused by not having any or very little money!
I always tell people my and their education will, or at least should, never end. I have studied and have attended numerous seminars to help my study so that I could become and stay financially well off.
You need to understand that you have to keep up your education, to keep up with the changing technology and financial times. Staying educated and up to date will help you to teach your children the important things they need to know about their financial future … they certainly won’t be learning it at school!