My parents never spoke about how much money they made or what kind of cash flow they had when I was growing up. I suspect a lot of families are the same and I really believe it is a huge detriment to children.
Teaching your children to manage their money when they are young can pay off enormously when they are older and living independently.
First Published April 2017 and updated July 2017
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I started college and got my first credit card, loans and bills without really knowing how to make a budget or the importance of saving. I’m sure I could be in a much better financial position had I known to take advantage of things such as compound interest and free credit.
Of course, we all wish that we had invested in Apple in the 90s or bought a house at the lowest point in the market in 2007 – I’m not talking about stock tips from my dad or get rich quick schemes. I just wish I had been given some solid advice to set me on the path to financial success, just some confidence in investing and what to do with my hard earned cash.
In order to avoid making the mistakes our parents made, I’ve put together a list of the best advice you can give your kids about money to get them started on the right foot and on the path to financial success.
Best Financial Advice to give your kids
1. Don’t buy anything unless you can afford to pay cash for it
Obviously there are exceptions to the rule but in general, this is worth following. By all means, use a credit card to accumulate points but don’t use it as a bank loan (see next tip).
You can start by teaching your children to save up for toys that they want using their allowance, cash gifts and money they have earned from doing chores around the house.
Nothing beats the satisfaction of using your hard-earned cash to pay for something you really want. This teaches children the value of a dollar and also patience.
Take Away: Teach the importance of saving from day 1.
2. Credit cards are not free money
Credit cards should be a tool in the financial arsenal but not a means to buy whatever you want, right now!
Savvy credit card use can be awesome as you can take advantage of perks such as travel rewards, free insurance, and buyer protection.
If you teach your kids to look at credit cards as cash instead of a loan, they will be able to take advantage of them instead of being taken advantage of.
Take Away: Do not ever put anything on a credit card if you can’t pay it off immediately.
3. Max out your retirement every single year you possibly can
Retirement is the number one thing we all should be saving for with each paycheck.
Yes, it’s boring. Yes, retirement is a long way away but you will never have the chance of accumulating as much compound interest as you do right now.
The earlier your children start saving for retirement, the more money they will have and the less of their own money they will need to invest for the same results. Compound interest is their best friend if they start young.
Starting to save at age 25 v age 35 can almost double wealth at retirement. Even $50 dollars a month can have a hge impact further down the road.
Let’s imagine an average 8% return on investment for argument’s sake.
Holly starts saving at age 25. She puts in a lump sum of $5000 she was given by her grandma.
At age 65 she will have $121,000 in her account even if she never adds another penny beyond the $5000.
Ivy doesn’t start saving until she is 40. She invests her $10,000 bonus from work.
At age 65 she will have $36,000 in her account.
You can see the power of compound interest clearly in this example. Putting in a little bit of money now makes all the difference later in life.
Take Away: Start saving early.
4. Build an emergency fund
“$1000 isn’t much money when you have it, but it’s a lot of money when you don’t have it. ”
Build yourself a cushion so you are prepared for a rainy day. It may be car repairs, an emergency flight to visit a loved one or a job loss but if you have built yourself a fund you will breathe easier at night and be able to weather the storm.
It may be car repairs, an emergency flight to visit a loved one or a job loss but if you have built yourself a fund you will breathe easier at night and be able to weather the storm.
I recommend starting with a goal of $1000 in a savings account and try and build it up to 3-6 months living expenses (expenses not income) so that you have a buffer in case of job loss or a recession.
Take Away: Sleep easier at night with a financial cushion that will mean you don’t need to rely on credit cards if times get tough.
5. Never cosign for someone
Or another version – don’t mix friends and money.
This one is self-explanatory but really, the road to hell is often paved with good intentions and loaning money or cosigning for friends or family often leads to rifts and issues down the road.
Teach your kids to consider all money lent as a gift and not to expect it back. If they can’t afford to not be paid back, don’t lend the money in the first place.
Take Away: Don’t lend money, regardless of the promises or closeness of the relationship.
6. Don’t try to beat the market
And don’t believe anyone who tells you they can—not a stock broker, a friend with a hot stock tip, or blog post!
Teach your kids that get rich quick schemes, whether they be pyramid schemes or sure-thing investments, are often the fastest way to lose your hard-earned cash.
Take Away: Invest early and often in no-load low-cost mutual funds and time will be on your side.
7. Pay yourself first
Your children should know to make saving a priority from day one, even if at first they only save $10 a month. With every raise they get, they should put the new amount in savings, keep living as before their raise and watch their accounts grow.
A great tip for bonuses or gifted money is to put 30% in long term savings, 30% in short term savings (new computer, toy etc) and keep 30% to spend now.
Take Away: Invest in yourself by paying yourself first and saving a little bit each month.
8. Negotiate hard
Women, in general, don’t do this. We need to. We need to work harder ourselves to bridge the pay gap and be paid what we deserve. Men seem to be more comfortable at negotiating from the get-go but may still leave money on the table.
Make sure your kids know to always negotiate a salary, for more money, more vacation, better benefits. It’s amazing how many people don’t do this.
Other things that should always be negotiated for a better deal – a new car, mattresses, appliances, a new home and anything you are buying in cash.
Take Away: Get what you deserve and get the best deal by becoming a good negotiator.
9. Live Below your Means
It’s not what you make it’s what you spend that counts.
The boring way to get rich – save money on the smaller things.
This may be the most important advice of all. It’s so easy to increase your spending with every pay raise as you go through life.
The easiest way to save money is to spend well below your means, whether that be by buying a cheaper car, a smaller house or cutting corners on everyday living expenses.
Make sure to show your kids that you didn’t get to live in the house you are in now, with the same standard of life without saving hard and working for it. Sometimes children think they deserve to be able to buy the same house they grew up in right from the get-go and that is where they can get into financial trouble.
Take Away: Save money on the smaller items in life to live richly.
10. Experiences are worth every penny
Worrying about money and hoarding every last penny is no fun and no way to live life. Spend your money on experiences, travel and learn new things. Purses and shoes go out of fashion but memories of good times last a lifetime.
Teach your children to spend their money on experiences, travel and learning new things. Purses and shoes go out of fashion but memories last a lifetime.
A great way to teach this lesson is to start giving experiential gifts for holidays instead of new toys and stuff that they don’t really need. Think zoo season passes or tickets to a sporting event.
Take Away: Buy time, not things.
For more ideas on how to save money, check out my other frugal living posts:
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