How young is too young to teach your children the importance of money and the beginning stages of supporting themselves? Some parents begin as soon as their children start asking the famous question, “Can I have that?” Others wait and start teaching them when they understand the mathematics of spending.
By teaching your children young, they will understand and respect the value of money when they are older. Plus, they will learn how the financial world works without finding themselves in unwanted debt. The formula 70/20/10 is used by many financial advisors to show adults how to manage money, and it is a great idea to teach your children the same formula. 70 percent goes to the cost of living, 20 percent goes to savings and investing, and 10 percent goes to charity.
The Cost of living
Teaching a child about the amount of money necessary to buy something needed or wanted is as simple as encouraging the child to work or do chores for their money. Small task or jobs will teach the child all about responsibility, and they will appreciate what they purchase more than if they were given what is asked. It also gives them a sense about the cost of living. If the price of a toy is five dollars, then they will have to do five dollars worth of chores to purchase it. If they want something else and they do not have the money, then they will have to do more work. It is important to keep things simple so the child will not get discouraged, but still get the point across you have to work to make money to live and buy what you want.
Saving and Investing
Children should receive partial payments for a job well done. This will keep them in the mindset necessary to save for what they want. It helps them with their goals and gives them a sense of pride when they have enough money. Even though a child does not want anything at the moment, they should still be taught to “save for a rainy day.”
Older children can be taught to open up a savings account for their earnings or a trust fund. It will teach them about interest earnings. Investing in the dow jones today and seeing their earnings grow when the stock market is up can be encouraging. When the stock market is down for the day, the child should understand that the money grows over time and not get too discouraged.
It is a good idea to teach our children charity. This gives a sense of helping others and in some cases like St. Jude Research Hospital or feeding the hungry can actually save lives. Charity and good works also help out the community and make good citizens.
The 70/20/10 rule has been around for many years and is proven to work. If children learn this rule at a young age and put it into practice, they should have no problem with the financial world ahead.