You teach your children to brush their teeth three times a day. You teach them good manners so they can get along with people. You teach them to study hard so they can get into good schools and, from there, good careers. And perhaps you teach them other valuable, practical things as well…
You may teach them to exercise and eat well so they don’t become overweight and more susceptible to disease. You may teach them to read on their own so they learn how to find answers for themselves. You may teach them some form of self-defense so they can protect themselves a bit better and have a little more confidence. You may teach them music – for the benefit of their souls or for the sheer enjoyment of it.
These things are all good. And money can’t replace any of them. But at the same time, none of these things can replace the need to teach your children good money habits.
Whether we like it or not, money is a necessity in life, and that’s why it’s necessary for us to accept the responsibility to teach our children about money.
After all, can you imagine the son of a Neolithic hunter-gatherer reaching the age of manhood without ever having been taken on a hunt? Or the son of a farmer during Colonial times reaching the age of 18, 19, or 20 without learning anything from his father about planting and caring for crops?
Inconceivable. Yet today, the great majority of parents simply send their kids off to school, believing that’s all they need to do to help their children learn to provide for themselves.
In school, they do (hopefully) learn to read, write, add, and subtract. And a lot of energy is spent trying to get them to obey orders and show up on time. But they don’t learn about money. As far as economics goes, they learn to be “workers,” not how to gain more control over their own lives.
The number one reason it’s important to teach your children good money habits from a very early age is that if you don’t, you can bet they will learn about money anyhow. But their first teacher will be Madison Avenue. And the lesson they’ll learn from the advertising industry is to be “consumers,” not stewards of their own wealth.
At a very early age, children are bombarded with commercials for toys, cereals, sneakers, movies, junk food, and games. And when they become young adults, their mailboxes are stuffed with credit card offers.
At the same time, most of their experiences with money are confined to spending, not earning – and certainly not investing. Their early money experiences, in other words, usually aren’t very realistic.
Most of the money they get is free, in the form of an allowance and gifts. The money they see their parents spend, meanwhile, also can seem like “free money.”
Though they see the purchases their parents make, they don’t necessarily see the work that goes into making the money. Nor do they see the choices and trade-offs that have to be made before every significant purchase.
As a result, many children grow up to become adults who don’t understand that if, for instance, you have $20,000 and spend it all on a new car, that car will likely be worth only about $7,000 in six years. Yet if that same money were invested at 13.2% (the average market returns from 1950 to 2000), it would become $42,083.
In other words, they don’t understand that the new car costs more than the initial $20,000… that it can cost them somewhere in the neighborhood $35,083 in future wealth ($42,083 -$7,000).
The point is, if you don’t teach your children about money, others will. And they will very likely be the wrong lessons – lessons that can encourage them to develop habits of out-of-control spending and debt that could cost them years of hardship to undo.
But if you do teach them well, the rewards can be enormous.
As young adults, your children will have more choices. They can continue studying if they like. They can travel a bit more. They can pursue the careers they really want rather than settle for jobs they “have to” take just to pay the bills. They can buy a good home for their families. They can continue to grow their wealth much more rapidly than their peers, who will likely only begin to save and invest at a time when your children will have already built up six-figure nest eggs.
And not only will they achieve financial security at a relatively young age – they’ll be better prepared to succeed in the practical world. Because the abilities they will need to develop in order to create wealth, will also serve them well in their personal lives.
I’m talking about skills like restraint, discipline, patience, and foresight. Teach them well, and with each passing year your children will gain a little more proficiency in these areas – along with knowledge and experience. As a result, their wealth will compound over time, but so will their competence and confidence – assets that truly make a person wealthy in the best sense.
And they’ll have you to thank for it.[Ed. Note: Justin Ford is the founder of “Seeds of Wealth,” a program that can guarantee a multimillion-dollar future for your child (or grandchild).]