Do your Children Constantly Ask for Cash then Waste it on Junk. Your Children can Learn how to Manage their Money, Assets & Invest for the Future.
I am going to lead you through a personal journey my wife and I have taken with our children.
When I tell our friends and family of how we approach this, they are always amazed, especially in how our children treat their money and their belongings.
Teaching Children to Earn, Manage and Invest Their Money [Checklist]
- No Free Money – The Pocket Money Trap
- The Earning Money Principle – good money for good work
- The Payment Structure – negotiating skills
- Children are Expert Asset Buyers – the considered purchase
- The Young Asset Managers – looking after their stuff
- The Asset Recycling Process – Selling Belongings generate more money
- The Future Investing Conundrum – Future Goals vs Need Right Now
1. No Free Money – The Pocket Money Trap
Unlike most children, our children do not get pocket money.
Pocket money instills a right of entitlement to free income. If pocket money is given every week your children will expect it, and if it does not arrive they will be angry or upset.
Children will have no concept of the value of money unless it is exchanged for something.
What can children exchange for money, well, good behavior and hard labor? What? Hard labor you say. No, I am not talking about sending them to work in the mines, I simply mean the work no matter how simple the task might seem hard to them at first… but stick with it.
2. The Earning Money Principle
Only when your child has worked for their money and has earned it, can they truly appreciate it.
From when they were young, our children could earn money to spend on whatever they wanted by working around the house, cleaning the dining table, vacuum cleaning or even emptying the dishwasher.
It is a fantastic experience, as you see them work they start to understand what a good job looks like, and they see what effort it is to maintain the house in good order.
3. The Payment Structure
When your child has completed the job, you can inspect the work and in the beginning, more often than not, they have done a terrible job. With words of encouragement and sometimes some help from you they can complete the task.
You need to discuss what jobs are worth how much money up-front before the job is completed.
When they are young 50 cents could seem like a huge amount of cash, but by the time they hit their teens minimum wage will be the standard to which they negotiate.
4. Children are Expert Asset Buyers
It is so great when you pay them for a job well done, and then you see them weigh up the value of their effort against the candy they are buying.
When they are younger they think “this chocolate bar is worth 3 dining table cleans, do I really want to buy it?”
When they are older your children will think “this PC cost me 100 hours of gardening”.
As they get older, they start to really think about what is important to them when making a purchase.
5. The Young Asset Managers
Children are Asset Managers, in fact, we all are. Most children have a pretty poor approach to managing their assets, that is typical and normal because most children do not value their assets.
The assets that young children have to manage are their toys. We gift them toys, bikes, and even iPads, but mostly they do not have a concept of the value of the assets and therefore are no incentivized to look after them.
Walking into their bedroom and hearing the crack of the toy you crushed beneath your feet
Adopting the No Pocket Money Principle (above) and enabling your child to purchase their own assets means they have evaluated the worth of these items and then naturally take better care of them.
6. The Asset Recycling Process
Help your kids understand that their assets 0if taken care of properly can be resold for money when they no longer need them. That is in effect, money they do not have to work for.
I have encouraged and helped my children to sell their toys and games console on eBay or local classified adverts so they may accumulate the cash to buy their next PlayStation or Smartphone.
This keeps the house free of clutter and removes the burden from me to sell or recycle their old toys.
This really helps them begin to understand the value of their possessions (assets).
If your child wants a gaming PC for $2,000 or an iPhone for $900, when it is coming out of their own pocket, they think twice.
My son built his own PC from his earnings, birthday money and gifts from visiting relatives. He has a distinct pride in what he has achieved.
He has earned it, built it himself for the experience and to save money, and he takes great pride in what he has done.
Now that we have instilled a work ethic, we move on to thinking about the future and investing.
7. The Future Investing Conundrum
We have discussed future life goals with our children and my daughter (11) wants to get her driving license and buy a cute Italian car, a Fiat 500 so that she can come and visit us while at University.
My son (14) wants a car but also want to head to University. We have an investment fund set up for the children into which we pay a monthly sum (they do not know that).
But to help our children achieve their goals, we have agreed with their consent that 70% of what the get for Christmas & Birthdays goes into their bank accounts.
Ultimately, the conundrum is our children have one eye on the future potential of their investments and one eye on the best purchases they need right now.
Neither of the children have expensive mountain bikes or iPhones, they have smartphones that cost a third of the price and deliver 80% of the value and they have bikes that meet their needs.
Let your child decide within the parameters you have agreed together.
They are invested in their future because they understand the value of working, earning money, spending their money wisely and planning for the future.