Are You Raising Money-Smart, Entrepreneurial Children? These Best Practices Can Help It is pretty common for parents to shy away from discussing money matters with their children due to cultural or societal norms that have been ingrained in them over time....
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It is pretty common for parents to shy away from discussing money matters with their children due to cultural or societal norms that have been ingrained in them over time. However, this approach can do more harm than good in the long run. Entrepreneurial children who are shielded from discussions about money often grow up with a lack of understanding and knowledge about financial decision-making. This often leads to poor financial choices, which can cause financial insecurity, stress, and long-term financial struggles. Therefore, it is essential to break away from the taboo surrounding money talks and educate our children about financial literacy to ensure they are equipped with the skills they need to make informed and responsible money decisions in the future.
As a father to five children ranging in age from seven to eighteen and working as a fiduciary wealth manager for over two decades, I've seen firsthand the profound impact that a family's attitudes and communication around money can have on their future. The way you approach discussions about money, the emotions you associate with it, and the language you use can leave a lasting impression for generations to come.
A lack of financial literacy can leave young people ill-equipped to navigate their financial futures and can even cause strain on their relationships as they mature. This is why I'm going to help you break the money taboos preventing open and honest conversations in your family and give you real-life tips that I've used with my kids to teach them entrepreneurship at very young ages.
To ensure your kids feel confident in their understanding of money and confident in their business ideas, it's essential to start teaching them these skills as soon as they are able to comprehend the concepts.
Ways that I've been teaching my five entrepreneurial children:
Start with giving them a checking account to manage their money
I started opening checking accounts for my children as early as eight years old; I found it was one of the easiest ways to teach them about managing their money from things like birthdays and Christmas gifts. They can learn everything from filling out deposit and withdrawal forms, checking their account balance, and using a debit card responsibly.
In an age of "plastic money,' it's critical to allow your children to manage their own money, so they can learn about the value of money and how to make responsible spending decisions. Kids learn better by doing, so this hands-on experience will help them understand the power of compound interest and the benefits of saving money over time. It also helps to instill a sense of financial independence and responsibility, which will serve them well as they grow older and face more complex financial decisions.
Pay your kids to do extra work instead of an allowance
In our household, we pay our kids to do extra things around the house on top of their daily or weekly chores. We feel that passing out money to our kids to make it through another week of life teaches them nothing. So, instead, we like to pay our kids for doing extra work around the house, so they can feel like they are genuinely earning money. It teaches them the value of hard work and the connection between work and money, helping them to develop a sense of pride and accomplishment in their work.
Paying your kids for extra work can also help them to develop negotiation skills. By negotiating with them over the amount they will be paid for a particular task, you are teaching them the art of compromise and the importance of communication. This can help them to build stronger relationships with others and to navigate difficult situations more effectively in the future.
Incentivize your kids to self-educate with personal finance books
I believe in offering our kids a transparent way to earn more money, and one of those ways is for them to read books on personal finance, goal setting, and other personal development type books. So, when my kids have plans with their friends to go shopping or to see a movie, they know what they can do to make extra money quickly.
After reading a book, have them put together a one-page report summarizing or a video of them explaining what they learned from their reading and what they liked most from the book. This ultimately helps them with learning proper time management, as well as sharpening their reading and writing skills.
Encourage side hustles
In order to instill a sense of entrepreneurship in your kids, you want to encourage them to start thinking in that capacity at an early age. Explain to them that if they want to make more money outside of what they can make at home, there are ways they can do that. Encourage them to offer neighbors a trash pick-up service, where they charge each homeowner a few dollars to bring their trash bins back once they've been emptied. Or, to learn a new skill, in this digital age, there are plenty of side gigs that many local businesses are looking for help with, for example, putting together social media content plans.
Give them an opportunity to problem-solve
Help kids develop problem-solving skills by encouraging them to think critically about the challenges they encounter and brainstorm potential solutions. As they develop these skills, they will be better equipped to tackle complex problems and identify innovative solutions, which are essential qualities for successful entrepreneurs. Another way to encourage this problem-solving mindset is to bring them in on your own thought process and show them how you go about creating a solution to problems that come up in your business, your household, or your personal life.
Cultivate a space for creativity
Provide your kids with opportunities to explore their interests and pursue their passions. This could involve enrolling them in classes or extracurricular activities related to their interests, such as music lessons, art classes, or robotics clubs. It could also include providing them with materials and resources to pursue their hobbies at home, such as art supplies, building blocks, or coding kits.
As they engage in these activities, it's essential to encourage their creativity by avoiding overly restrictive rules or expectations. Instead, provide them with open-ended prompts or challenges that allow them to come up with their own ideas and solutions. For example, instead of giving them a specific project to complete, ask them to come up with their own project idea and then provide them with the materials and support to bring it to life.
Create a threshold for failure
Help your kids understand that failure is a natural part of the entrepreneurial process and that taking risks is necessary for success. Encourage them to try new things and take calculated risks in their pursuits. Children are often taught to avoid mistakes and play it safe. However, taking risks is an essential component of entrepreneurship, as it involves taking calculated risks to achieve a desired outcome. Here are some ways to encourage risk-taking in kids:
- Emphasize the value of trying new things: Encourage your kids to explore new hobbies and interests, even if they are uncertain about whether they will enjoy them. This can help them develop a mindset of experimentation and openness to new experiences.
- Celebrate failures: Help your kids understand that failure is a natural part of the learning process and that making mistakes is okay. Emphasize the lessons that can be learned from failure and encourage them to persevere in the face of setbacks.
- Provide a safe environment for risk-taking: Ensure that your kids feel supported and safe as they take risks. This can involve providing a safe physical space for them to explore their interests and emotional support and encouragement as they tackle new challenges.
- Model risk-taking behavior: As a parent or caregiver, you can model risk-taking behavior by taking on new challenges and sharing your own experiences with your kids. This can help them see that risk-taking is a natural part of life and that it can lead to growth and success.
Teach them the power of a growth mindset
Fostering a growth mindset in kids involves teaching them to embrace challenges and setbacks as opportunities for growth and learning rather than viewing them as indicators of failure or inadequacy. Here are some ways to encourage a growth mindset in kids:
- Encourage effort over ability: Emphasize the importance of hard work and effort in achieving success rather than innate talent or intelligence. This can help kids understand that they can improve their skills and abilities through practice and perseverance.
- Praise their progress, not just their achievements: Rather than focusing solely on the end result, celebrate the progress that your kids make along the way. This helps them develop a sense of accomplishment and motivation to continue working towards their goals.
- Help your kids set realistic goals: Encourage your kids to set goals that are challenging but achievable, and break them down into smaller steps that they can work towards over time. This can help them build confidence and momentum as they make progress toward their goals.
- Model this growth mindset: As a parent or caregiver, you can model a growth mindset by embracing challenges and setbacks in your own life and demonstrating resilience and perseverance. This can help your kids understand that setbacks are a natural part of the learning process and that they can learn and grow from them.
Provide them with mentorship and networking opportunities
Providing mentorship and networking opportunities can be invaluable for instilling an entrepreneurial mindset in your kind. Connecting them with other successful entrepreneurs in your network who are willing to offer guidelines and advice can help them not only learn from others' experiences but also motivate them to develop their own entrepreneurial skills. A great way to do this is by bringing them with you to networking events or allowing them to listen in on some of your business meetings, so they can start to hear how you and your colleagues discuss your business plans.
Encourage your kids to build their own networks to help them develop the skills, knowledge, and connections they need to succeed in the world of entrepreneurship. There is an abundance of events and conferences that they can attend and online forums or groups they can participate in.
Teach them the 50/30/20 method
We encourage our kids to follow the 50/30/20 rule for managing their money. This means that we've instilled in them to always save or invest at least 30% and donate 20% of their earnings. The rest can be kept for their own spending, whether that be fire movie tickets, shopping, or for our older children, their car insurance payments, etc. Teaching a philosophy of disciplined saving, investing, and giving cultivates a mindset of abundance and nurtures beneficial financial habits early on in life.
Share your own financial goals and plans
One of the best ways to teach your children a real-life understanding of money is by involving them in financial conversations. You can do this by sharing your own financial objectives and strategies with them. Tell your children if a goal of yours is to purchase a new home, and share with them what steps you plan to take to achieve that. Explain to them how much money you need in order to achieve that goal, how much money you'll need to put aside each week or month to reach that number, and how long it will take until you are ready to complete your goal of purchasing a new home for your family.
Show them how to plan for big purchases
When you involve your children in the discussions around the planning of big purchases you plan on making as a family, like buying a new car, a vacation, or a new home, it can help to give your kids a sense of responsibility and help them to feel like they are invested in your families financial well-being. Help them understand the added expenses they'll need to think about outside of the big purchase; for example, if you are planning on buying a car, share with them how much more expenses your insurance premium will be, how much the car registration and maintenance fees will be, and how they can plan for those expenses. Or, if you are planning on a vacation, help them understand the real-world costs that will need to be allocated for things like excursions, food, transportation, and other accommodations that they may not think to include in the planning process. This all really helps them to gain a realistic understanding of how much things actually cost.
Be transparent about the cost of everything
Be honest with your children about the cost of things; tell them how much it costs to run a household and how much it costs to provide the family with groceries. Help your kids comprehend the true value of money, so they can understand how hard you work and how you had to budget to ensure they were taken care of with school supplies and sports activities.
I find that many families aren't very transparent in these areas, leaving their children to grow up and not realizing how much money it actually takes to do those things.
It's essential to understand that teaching your children about money isn't just a one-time event. Rather, it's an ongoing process that you, as the parent, must consistently model and teach your kids throughout their childhood and into adulthood. Starting off when you're kids are very young with some simple and more basic conversations, and as they develop a deeper understanding, you can start introducing more complex and mature discussions for them to participate in.
By breaking generational taboos surrounding money talks with your family, you will help your kids become prepared financially for their future. It will help them to feel confident in their thought processes and for when they are talking about money amongst their peers. As a result of gaining these necessary skills and knowledge, they will develop the ability to make wise financial decisions, which will eventually lead to enhanced financial security, stability, and prosperity.
If you leave with only one takeaway, let it be to stop keeping money a secret from your children. Stop expecting them to suddenly figure it out on their own once they leave your house after high school or college, even if that is the way you were forced to figure it out. The goal is to help put your kids in a position to do even greater things than you were able to at their ages. Have open and honest conversations with your children and instill financial responsibility and accountability from an early age. Involve them in financial decision-making, lead by example, and make financial education an ongoing process. Empower them to be self-sufficient and confident with money as they transition from childhood to adolescence. By taking these steps, you will be setting them up for a lifetime of success.
The post Are You Raising Money-Smart, Entrepreneurial Children? These Best Practices Can Help appeared first on Due.