It is often said that the reason the rich stay rich is that they know how to manage money. While the reason the poor stay poor is that they spend money like their rich. I noticed that persons who identify as “middle class” have a distinct set of beliefs, ideologies, and techniques than those who identify as “very wealthy.” Their secret to becoming wealthy was not in the mechanics of money. But rather in their values and level of thinking they have that they teach their kids.
From a young age, the rich impart life lessons about understanding money to their kids the proper way of how to spend money and manage it at an early age. So I dig deep to find out what are the ways the rich teach their kids about money. Here are the 5 ways of how the rich teach their kids about money.
1) An Early Introduction to the Concept of Money
From a very young age, the rich teach their kids the importance of counting coins and what can be brought with it. This is done by sharing the kids how much the value of the dollar is, what can it exchange it with and what potential it has if you could save more of the money. This test is famously known as the marshmallow test.
For example, by letting the kids know of the pricing of an apple which is a dollar and giving the kid $2. Parent would continue by questioning how much money is left after purchasing this apple. So if the kid wishes to buy the apple at the offer of 5 for $3, he/she would have to learn to wait until he/she has enough saved up. This teaches the kid the power of savings and understand how to control their temptation better. And in the future, the teaches kids the importance and understanding of investing for the long-term.
2) Allowance Model
There are many advantages of giving pocket money to kids from an early age. For starters, the allowance model teaches kids how money is used and what can it be traded for. It will teach kids the importance of managing their allowance and making sure that they do enough to earn it in the first place.
The experience works best when parent choose not to increase their allowance. Which the kid will learn about inflation. When the kid realise that prices in their food court, the bus ride, or the toy shop have to raise their prices. The kid will learn the danger of inflation and strengthen the importance of making more money to beat inflation.
3) Work Smart. Not Hard.
From a very young age, the rich would allow their kids to explore multiple sports or enrich in talent classes. While the middle class and the poor would only teach their kids on staying in school reading books all day. This can be bad when kids grow up to be an adult but lack the sense of creativity and imagination. The rich would also share interesting topic on how can one make money through unconventional ways such as art or collection. This teaches the most important value about money, which is time is not equal to money.
4) Taking Ownership of Mistakes
Affluent parents allow their children to use money independently and make mistakes to use it as a learning experience. Being inexperience with almost everything, risk is at an all-time high. However, the affluent parent understand that times like these are where most learning points in the kids life can be found. Their failures and successes will enable them to form an identity that is separate from their established parents. Which allow the kid in the future to make wise and sound financial decision on whatever they wish to take on.
5) Saving will not make you Rich
Saving the best for last, the rich teaches the importance of investing. The secret demise of the people is solely focusing on conserving money. It’s not that saving is bad; it’s the level of consciousness from which it comes that makes it risky. The ultra-wealthy people are constantly looking for ways to double or triple their income so they can live the “good life.” The remaining of their money is then invested in equities, bonds, and real estate. This teaches the kids to take on calculated risk and learn how to start a successful business.
Financial literacy is a critical tool that any individual can learn. If you are a parent looking to teach the importance of money to your kids, start young. The sooner your kid learns the importance of managing money, it will inculcalte the positive habit of saving and investing. Read on to learn what are the benefits of raising a financially literate child.