How can we teach our children to become financially astute? Here are some tips.
1) Start early. By the time children reach maturity most of their money "habits" have taken hold. By instilling financial wisdom at an early age, the likelihood that they will treat their credit card with respect increases dramatically. Open a savings account and teach them the value of compounding interest and the time value of money.
As they mature, allow them a credit card, but keep limits on spending.
Remind them: The old adage of "if it's too good to be true, it probably isn't true" can be useful when offered a "great deal". "Neither a borrower nor a lender be" is another old adage to take to heart.
2) Allow kids to make mistakes. Making small errors along the way can prevent one major catastrophe. "If you don't fail, you probably aren't learning." A certain amount of financial risk- taking can be tolerated when you are young. But placing your entire nest egg at risk when you age is not the best plan for financial security.
3) Make sure kids learn the principles of supply and demand and the basics of bank lending rates, mortgages, and interest rates.
Support their curiosity about how stocks, bonds and other investment alternatives can help build their long term wealth. Encourage the long term view of investing rather than any "get rich quick schemes."
Explain the difference between an appreciating asset and a depreciating asset.
4) As they mature, Introduce them to a financial planner who can assist them to build a secure portfolio.
6) Make them aware of the pitfalls of greed when it comes to investing. And teach the difference between "need" versus "want"; patience versus immediate gratification and how to avoid the many financial temptations that will confront them throughout life.
7) Assist them to make good philanthropic decisions.
Helping children to make good decisions about personal finances is one of the best ways to assure that they reach financial independence.
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