Parents are the children’s first teachers long before they go to school. It is instinctive for us to want what is best for our little ones, which is why we provide them with a good education. It is part of setting up our children for success in life, as we want them to continue living and have a good life in their adult years. But a lot of times, children are only taught how to make money not how to manage their finances. By teaching them early about the importance of earnings, savings, investments, prudence, and the value of work, we lay a foundation that can guide them toward financial success throughout adulthood. Here’s how to approach each of these pillars.
Pillars of Financial Success
Here are the pillars of financial success we can introduce to kids of any age.
The Value of Work
Teaching a child about the value of work is an essential step in helping them appreciate the connection between effort and reward. When children understand that money and achievements often come from time, skill, and dedication, they gain a sense of responsibility and pride in their efforts.
Simple tasks around the house, like helping with chores or assisting with family projects, can introduce them to this concept. As they grow, opportunities for age-appropriate jobs, like babysitting, pet-sitting, or a weekend job, can further reinforce the idea.
When they earn money from these tasks, they learn not only about managing their finances but also about the personal satisfaction that comes from contributing and achieving something on their own. This also instills the idea the fact that money doesn’t grow on trees. We work for what we have and so children need to understand that, too.
Segue to Savings
Financial success is not just about earning so much money. Business history will show us that no matter how much one earns, he or she can still end up always in lack or even broke. So teaching our children to fish is not the only element to financial success.
Teaching children about savings early on in life is essential. Whether it’s a piggy bank, a jar for coins, or even a small bank account, the goal is to help them understand the concept of not using up everything they have and setting aside money for future needs.
Explain how saving a portion of their allowance or earnings helps build financial security and allows them to reach personal goals, such as purchasing something special or even starting a business. Consider encouraging your child to set a specific savings goal, like saving for a toy or a small trip. This makes saving feel rewarding and achievable, building lifelong habits. We started a travel fund with our eldest daughter back then and after five years of saving up for it, we brought her to Hong Kong Disneyland.
Introduce the Basics of Investing
Investing may seem advanced for children, but simple lessons on the basics can go a long way. Start with the concept of “money growing over time.”
For younger children, show them a chart of compounded savings, where the money increases as it sits in a bank or investment. For older children, introduce basic investment options, like stocks, bonds, or mutual funds.
When our kids were in their preschool years, we started mutual fund accounts for them and casually threw around the word “investment” in our everyday conversations. We would also bring them to local offices where they get to see their physical money getting “safe kept” as investments so their money would “grow.” They may not fully grasp the meaning of these terms however, they are at least familiar with them.
Emphasize Prudence and Wise Spending
Teaching prudence means helping your child understand the importance of thoughtful, informed spending. It’s natural for kids to want things immediately, so discussing needs versus wants can help them make mindful choices.
We discuss expenses and the prices of stuff as opposed to how much people earn nowadays. These discussions are not really structured but we find ways to include the topic in our conversations. Show them that prudent decisions, like choosing cheaper options or even thrifting, can free up money for savings or investments, helping them understand the impact of choices over time.
Building Lifelong Financial Habits
Setting your child up for financial success isn’t a one-time lesson but an ongoing process. As they grow older, you can introduce more complicated concepts and challenge them to do more.
Your guidance will help them develop into financially literate adults who can confidently handle money, make wise choices, and pursue financial stability throughout life.
How to Save and Invest Your Child’s Money the Easy Way
There are many ways to invest your child’s money and it depends on your exposure, purpose, knowledge, how much money you have, and your risk appetite.
We are not experts in the field but there are safe avenues for investing even for people like us. Here are some of the things we did.
Keeping a Savings Box at Home
Our two daughters started with savings boxes at home where they put both coins and money gifts. When they already had quite a substantial amount in the box, we deposited the cash in the bank. It is safer plus they get to see their balance increase regularly.
Kiddie Savings Account
We opted to open a BDO Junior Savers because it came with a passbook. At that time, Shane had learned how to read so she could very well see her money adding up, which was quite exciting for her.
Easy Top Ups
Since I am a BDO savings account holder, I associated my daughter’s savings account with mine so that I can easily manage her deposits. I regularly transfer funds to her Junior Savers account with a few taps on my phone.
Interlinking Savings, Insurance, and Savings
To further build her college fund, we started another mutual fund account and an investment with an insurance policy, which we pay annually. While waiting for the due date, we continue to build up the mutual fund side through an auto-debit connected to her BDO Junior Savers account. We take out the payment for the insurance policy from the mutual fund.
We are not financial experts but BDO has made managing our daughter’s finances a breeze. We are thankful for the bank’s services and features that allow us to secure our daughter’s future financial success even while in the comforts of our home at any time of the day.
