Money 403: Passing The Wisdom On

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Money 402: Insurance

Nobody but you can teach your children about money before they come of age

  • You are therefore responsible for their spending lifestyle
  • They will see more about how you live than about what you say

Age 3-5

  • Teach them that money is needed to buy things
    • This is most easily done by having them buy things with it
  • Show them that money is earned by working
  • Enforce that waiting is many times necessary to get what we want
  • Inform them on the difference between a want and a need

Age 6-10

  • Pay commissions for jobs done, not allowance
    • Commissions teach that money is earned
    • Allowance teaches that money is always available
  • Teach them the importance of keeping personal information private, especially with e-vendors
  • Show them how to break out their money into 3 groups
    • Giving
      • Stress the importance of giving by making them give
      • Ultimately, generosity is defined by how much money is given
    • Saving
      • At least a dime for every dollar
      • Use a clear jar to make it more visually appealing
    • Spending

Age 11-13

  • Teach them about the opportunity cost of money (you can only spend it once)
  • Show them how price-comparison shopping works
  • Open few accounts for them and teach them with monthly reviews
    • A checking account for their spending
    • A savings account to show what interest does and how compound interest works
  • Teach them about the dangers of debt and how you’ll be charged more than you spent by not paying it off every month

Age 14-15

  • If they have creative ideas to make money, be willing to invest, as well as expecting them to return that investment somehow
  • Show them how buying things with credit cards instead of cash is a bad way to live
    • They need to know that they can only have a credit card if they pay it off in full every month
  • Let them know that they need health insurance
  • Teach them how to budget

Age 16-18

  • Help them to get a job if they haven’t yet
    • Show them how their first paycheck is going to always be smaller because of taxes withheld
  • Once they get a job, they need to contribute to the maintenance of the household
    • While some of them may voluntarily buy what the house needs, others may need to be charged room and board
  • When expenses like driving school, cars and gas come up, require them to pay for it themselves
  • Teach them about investment vehicles
    • Roth IRAs are great for building wealth
    • Risk and expenses are a necessity of investing, and investing is necessary to retire well-off
  • Push them to save 3-6 months’ worth of expenses for emergencies
  • When they’re looking for a college, keep the following in mind
    • College is a purchase, not a right
    • Pedigree and prestige are nowhere near as important as hard work ethic and determination
    • Cosigning a loan is assuming just as much risk as they are throughout the life of the loan (i.e. decades of their adult life)
Next: Money 404: Coming To The End