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The 6 things you should Teach your Children (or Spouse, Friends, Yourself) about Wealth

  01/08/10 11:05, by Len, Categories: Financial Management, Budgeting, Cash Flow Management, Debt Management, Investment Management

Source: Feature by Nicholas van der Meer - December 2009

1. Save
‘A penny here, and a dollar there, placed at interest, goes on accumulating, and in this way the desired result is attained. It requires some training, perhaps, to accomplish this economy, but once used to it, you will find there is more satisfaction in rational saving than in irrational spending.’ P.T. Barnum
Learning to save is probably the most important thing you can teach your child about wealth. It is not only prudent to put something away for a ‘rainy day’, but it also encourages children to save for a large costly item instead of buying it on credit.

There is only one way to save - spend less than you earn. It sounds simple, but so many people find it impossible to save. A common complaint is that no matter how much they earn or how large their increase, there never seems to be enough to put some away. Does the phrase ‘If only I earned more, then I would be able to save’ sound familiar?

The problem is not that we don’t earn enough, but rather that we have gotten into a habit of spending everything we earn (or even more than we earn!). The financial crisis of 2008 was specifically related to people, mostly in the west, spending $130 for every $100 they earn. The key is to spend less than you earn, irrespective of the size of your paycheque.

The first objection is that you would not be able to pay the bills if you put 10% of your paycheque into savings - you only just make ends meet as it is. The truth is there will never be money left over at the end of the month - saving needs to take place at the beginning of the month. It is best to set up a debit order on the day you receive your paycheque for 10% or 15% of your salary. You may think that you won’t be able to pay the bills, but you will make it work.

Practical application:
A great way to teach kids to save is to give them pocket money each week. Keep a piggy bank / shoe box in the house which is the savings box. The first thing they should do after receiving their pocket money is place 10% in the box. So if they get R100 a week, they should slip a R10 note in the box. Your kids will soon learn that despite ‘earning’ R100 a week, they only have R90 to spend. Physically placing the money in a box helps them to understand saving practically. After a few months, open the box and show them what they have saved. They will see the power of incremental saving.

2. You can’t have everything you want.
‘I have learnt to seek my happiness in limiting my desires, rather than attempting to satisfy them.’ John Stuart Mill

Many children learn from a young age that they can have everything they want. As we grow older we realise this is not reality. Buying your children everything they want is doing them no favours -once they start managing their own finances they are more likely to overspend because they ‘just can’t resist buying this or that’. Many adults who have not yet learned this end up with a stack of unpaid credit card debt. The reality is that no one can have everything they want, which is not a bad thing. By not buying everything you want you learn to enjoy the things you already have and you also learn to have fun without spending money. Your children will not have a horrible childhood if they don’t get all the latest toys when they hit the shelves. The truth is that there is so much that one can do without spending money.

Practical application:
Don’t give your children enough pocket money to do everything they want. In this way they will learn to entertain themselves via less costly means. Encourage them to do things that don’t require money to be spent. Limiting their pocket money also teaches them about making cost-benefit decisions. If they have R50 and can go to either a movie or dinner, it will encourage them to think about what is more important.

3. Don’t work for money
‘Focusing your life solely on making a buck shows a poverty of ambition. It asks too little of yourself. And it will leave you unfulfilled.’ Barack Obama

This is one of the most difficult concepts to understand and to learn but very easy to teach. No parent wants to see their grown child working a job they hate just to pay the bills. Not everyone can pursue their dream profession - that’s just not the way the world works. Most people will work jobs that are monotonous or unsatisfying, but that does not mean one cannot enjoy their work. The best way to hate your job is to be there purely for the money. This is an outcomes-based approach to career. The problem with working a job purely for the money is that only one day a month do you have the joy of seeing the money enter the bank account. For the other 29 days, you hate what you are doing because the only thing you place any importance on is making it to the next payday.

The goal is process-based thinking where you work for reasons other than making money. Being paid for your work should be a side thought, a by-product. In his book Rich Dad, Poor Dad, Robert T. Kiyosaki explains how his dad taught him how not to work for money by offering him work in his shop for no pay. He said that in this way he learned to find more fulfilling motivators to keep him in the job. These other motivators can include being a loyal servant, learning a new trade, connecting and socialising with co-workers, making a difference to other people’s lives and developing your skills. It is better to learn to be motivated by these things instead of counting down the days to the next payday. You will be more fulfilled if you shift your focus from money, and you won’t necessarily have to change your job.

Practical application:
The best way to teach your child this principle is to get them to do some work for free. Give them chores to do around the house or at the family business, or get them involved in doing community work for which they will not be paid. They will think it silly to work for no pay but once they get over the injustice of it, they will have learned to not work for money.

4. Sharing
‘Money is like manure; it's not worth a thing unless it's spread around encouraging young things to grow.’ Thornton Wilder

Most people are familiar with the saying ‘Money in itself is not evil; it’s the love of money that is evil’. This is quite true if you see what people will do to acquire or hold onto money. Teaching your children to share is a great way to ensure they don’t become greedy. No one wants to see their child become a money-grabbing individual who will do whatever it takes to get rich. The best way to loosen money’s grip on you is to give it away.

Practical application:
No man ever became poor by giving to the needy. A good idea would be to have another box that your child should place money into every time they receive their pocket money. Allow them to decide what to do with the money. They can give it to a charity, a religious organisation, a homeless person or they could even use the money to buy something for someone they love. Your children will learn the power of money to bring joy to other people’s lives.

5. Having a lot of money does not stop you from worrying about it.
‘Can anybody remember when the times were not hard and money not scarce?’ Ralph Waldo Emerson

A great fallacy about money is that if we have more of it then we won’t worry about it. I have heard countless people say, ‘I don’t want to be rich, I just want to have enough money so that I won’t have to worry about it’. Unfortunately no amount of money will stop you from worrying about it. I have met a number of people with fortunes well in excess of R50m, and the number one thing they worry about at night is their money. Most of us find it near impossible to imagine a multi-millionaire worrying about money. For the working class man, he wishes to have enough so that he won’t have to worry about monthly expenses. But once you get to have so much money, you don’t worry about the expenses worry about losing it.

Practical application:
Teach your children to count their blessings, both monetary and non-monetary. Many things to be thankful for have nothing to do with money - friends, family, nature, health. Remind them of what they do have and encourage them to be thankful for everything. It is better to want what they have got than to get what they want. Help them to realise that they have enough and that if they don’t feel they have enough, no amount of ‘more’ will ever be enough.

6. Only borrow money if you can pay it back
‘Home life ceases to be free and beautiful as soon as it is founded on borrowing and debt’ Hendrik Ibsen

Many people blamed the use and extension of credit for the financial crisis of 2008, but that is only half true. It is more correct to say that extending credit to people who could not pay it back is what caused the financial crisis. Credit is simply delayed saving. Instead of saving up for something and purchasing it after a number of months, credit allows you to take ownership immediately and save for it later.

Practical application:
Credit is here to stay and at some point your children are going to find a credit card in their hands. Many people around the world believe that credit is money that someone lends them that they need not pay back. Teach your kids early on to pay their debts. For young children, if they wish to buy something that they have not saved up for, buy it for them and then make sure each week they physically pay you back for the money they owe. This will get them into the habit of paying their debts and will show them that credit is not ‘free’ money.

For older kids, getting them a credit card is not a bad idea. To start, set a limit on it that is not more than 1 month’s pocket money. Set a rule that the credit card must be paid off at the end of each month. This way they will get accustomed to having a credit card from a young age in a controlled environment. If they don’t pay it back, cut it up.
Finally...the best way to teach your children these principles is to practise them yourself.

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