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Teaching Financial Skills to Kids

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childrenatairport I was watching the antics of the rich kid who stood to inherit a big fortune from his grandmother in the Korean drama- Brilliant Legacy and saw how he had no concept of money.

For the rich kid, it sort of like grew on trees. Until his grandmother saw that he and his family members had to learn a lesson and earn their own living.

So is your kid one of those who gets anything they want? iPhone, the latest DSLR, pre-booked iPad etc. with no questions asked?

Ever wondered what will happen when you hit retirement and you kid is still living off you? What happens then?

When I was at a bank call centre, I listened to calls of the financial illiterate, although they were often rich in the sense that they draw a big salary. People who drew cash from credit card. Those who pay the minimum payment and roll over their balance in the credit card debt. Including those who cannot differentiate between a chequebook for their current account from the chequebook for their credit line, although this one is more of pure carelessness instead of financial illiteracy.

So what if your kid can earn $100,000 a month. If he or she spends all $99,500 each month saving only $500 each month, they will be worse off than someone who earns $4000 and saves $500. Why? Because the second scenario, the person has lower living costs even though they save the same. When retirement hits, the big spender will still spend a lot even though their savings may not be sustainable.

The thing is that in schools, there is no financial education class. Zilch, nada, zero, nyet.

The only thing approaching that is those in university, if you attend classes like financial economics, investment, etc when you study business courses.

But by that time, it could be too late, with the spending habit already indoctrinated and a bad habit formed of spending beyond one’s own means.

I guess like everything, there is always exception. Like if your parents aren’t spendthrift and give you a budget enough to get by but not enough to make a rope to hang yourself by.

So the first lesson for kids of financial literacy is to give them a fixed budget each week and if they blow it, smile at them teach them budgeting. Or ask them to earn their own living like that grandmother in the Korean show.

To achieve financial freedom for both you and your spouse, plus for your children, you need to be tough on them and let them know that money doesn’t grow on trees.

I leave you with a quote from my favourite investor, Warren Buffett,

The perfect amount of money to leave children is] enough money so that they would feel they could do anything, but not so much that they would do nothing

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2 comments:
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Waverley said...
March 30, 2010 at 3:26 PM  

Hi L,

Since we are on this topic, what do you think of paying the kids to do housework?

I think it cuts both ways, in that, while they know they have to work for their keeps, will this give them the impression that parents will always be the "employer of last resort"?

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Lemizeraq said...
March 31, 2010 at 10:38 PM  

Hi Waverly,

Thanks for visiting. Yes, I think if you can pay kids for cleaning up their own room. Not too sure if you should get them to do other household chores though.

If the task is small but manageable the sum involved should be so much that they feel that the parent is "employer of last resort."

And at the same time, I would think you still have to give them the same allowance so the household chores is on top of that.

It will be a good exercise for them to learn that if they want to buy something, they have to work and save for it. At the very least, they will realise money doesn't grow on trees.

Anyone else like to comment? Or has someone tried it out?

Regards,
Lemizeraq

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