Five steps to help financial education of your children.
As a parent, I keep asking myself what skills would matter for my children when they approach the job market in 15-20 years? With more and more jobs being outsourced to AI (not only manual but more intellectual ones), everybody knows the skill set required is changing. There are a lot of discussions about problem solving, social/communication skills, ability to adapt to changes etc. But I wanted to look at the questions from a different point of view.
The traditional path of working with a handful of employers and getting a pension at the end of a career is long gone and there are more and more trends of multiple careers as well as working for yourself. Schools and media talk much more about start-ups and inspirational self-made people.
However, what is missed almost completely is financial education. Shouldn’t we teach our children about the money? Considering there is a lower probability that our children will end up with a guaranteed financial income from a sustainable job, as a parent, I want to teach my children to provide for themselves no matter what job market is going to look like.
So, what do I mean by financial education? It is not only about learning to balance earnings and expenses, but about thinking about some investment options. It may sound too complicated for your children, but you can start laying down the foundation. Here five steps to give it a go:
Step 1: Build financial vocabulary.
You cannot be financially literate if you do not have the words to use. Vocabulary gives the framework. Let children listen when you talk about finances at home, ask you questions and find an easy way to explain basic concepts. Do not be afraid to mention cash flow, asset classes (equities, bonds, commodities, real estate, cash) and how to create the right mix of investments. As any new words, children get familiar with the sound of them and overtime, they will grasp their meaning.
Step 2: Play financial games.
With the little children, you would start with encouraging them counting coins and paying in the shop and getting the right change. Then you can look for some board games, such as Monopoly for younger children or a more complicated one as Cashflow Game from Robert Kiyosaki. The game is done for the US financial market and some terms are not relevant, but it does teach the basic skills of how to invest.
Step 3: Let your child earn some money – practice makes perfect.
The best way to teach financial thinking is to help children come out with the ideas to earn their own money. Personally, I do not believe children should be paid for home chores (they should be doing them anyway as everybody else in the family) or given free monthly allowances (as free money does not teach much). However, I am happy to pay for editing my blog, photos for my social media or giving piano classes to the younger sister. Ask your child to come out with ideas how they can earn some money. Obviously, keep the amounts low as it is more an educational tool than a real job.
Step 4: Teach your children to manage their money
Firstly, what you can not measure, you can not manage. Use the apps to RoosterMoney, goHenry or Spending Tracker to teach children to keep a record of their earnings and spending.
Step 5: Investment
Next step (and most important one), you have to explain that saving money to buy their dream gadget does not generate any money for the future. You also have to teach your child to invest. You can actually discuss the options and make small real investments (you will have to do it on your child’s behalf), just to see how it works in practice. Just as a little example, you can listen to this podcast (together with your children) with 10 and 12 years old brothers and their parents on financial education. Take things with a pinch of salt, but it may inspire your children to think about investment (it did my 10-years old).
Do not take me wrong, just to know how to manage the money, would not make one well-off necessarily, but it does increases one’s chances.
As a job of a parent, we can not make decisions on the behalf of our children all the time or control their future, but we can increase their chances to have the best life possible by teaching them the skills to succeed.
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