When we think of all that we want for our children, for them to be successful, to do well in school, or to just be happy, it can feel lofty and even daunting. But there are plenty of practical, everyday things we can do to help them thrive in simple, but powerful ways.
Like teaching them how to be good with money. Instilling them early with good financial habits is a gift that keeps on giving. It’s an understandably de-prioritized or even overlooked part of parenting, but I’ve enrolled the help of the very best to make it an easy add-on.
Warren Buffett seems to know a thing or two about finances and his best advice on managing money is fantastic for children to ingrain now (and for mom and dad to learn too).
1. How you are with money is just as much a moldable habit as anything else.
We try to teach our kids to be polite, kind, and respectful. We want to teach them good manners and develop habits of punctuality and hard work.
Their mindset towards money is a habit too, one that can lead to always having enough money on hand or living paycheck to paycheck. The problem with developing bad habits with money is that they are quieter and more insidious than your average, daily bad habit. Buffett eloquently describes it this way:
Chains of habit are too light to be felt until they are too heavy to be broken–you can have any habits, any patterns of behavior that you wish. It’s a matter of what you decide.
So step one is to view money management as a habit that needs to be built, early. I know, it’s hard to prioritize when you’re still trying to teach the importance of not waiting until the last possible minute for every single homework assignment to be done. But remember, this is a gift that keeps on giving. Let’s go to the next point to get started.
2. A great financial habit comes from lots of little ones.
Start small. First, teach the basics and secure little victories. Our 16-year old daughter had her own savings account and credit card pretty early on and is set up to talk to our financial advisor when she wants to. She just got her first paycheck for a summer job and is learning about taxes.
After the basics, it starts with basic choices. If you buy this now, you won’t have enough to buy that later. Buffett believes the key is to start with a small habit, a series of consistent choices, and keep at it until the impact becomes noticeable. How is it that child A was able to save up enough to buy her own car by high school while child B can’t swing that? From choosing to ask for tap water at lunch instead of buying a triple-sugar frappe-whatever.
We certainly haven’t mastered this in our household yet, but we’re making progress and the story’s heroine is starting to see the difference it makes.
3. “Don’t save what’s left after spending; spend what’s left after saving”.
This is a quote from Mr. Buffett, one that speaks to the need to “save from the top”, or to set aside a percentage that comes right out of your paycheck and goes into savings (before you pay a single bill or buy a single thing).
Start with a small goal of saving, say, 2 percent of every paycheck, develop a budget that tracks every cent spent, make little choices and keep adding to them to get to 3 percent saved a month, and so on.
Of course, this requires living within your means, at a level that’s comfortable but that challenges the definition of what’s really needed to be comfortable. Let your kids see you role modeling this, calling it out when you’re choosing a cheaper alternative or are choosing to not spend on something at all.
4. From day one, know the difference between bad debt and good debt.
You can never start too early here because you can quickly get too far behind. Your child might soon be taking out student loans or maybe a business loan to get their budding business idea off the ground. While Buffett says no debt is always preferred, at least loans like this are investments in the future, as opposed to maxed out credit cards or cash advances.
Sit down with your child to make sure they understand the difference to help prevent them from making a bad first move that soon becomes an albatross.
So while you’re working on helping to form all those other habits, don’t forget the one that will literally pay dividends someday.