One of the great tragedies of wealth is that it can be short lived. Families can work very hard over many years to accumulate significant wealth, only to have it lost by subsequent generations.
Believe it or not, about 70% of families lose their wealth by the second generation and 90% lose it by the third generation. That’s a sobering reality to think about as we watch our children grow up. It’s bad enough to think the benefits of all that work could be lost, but it’s even worse to think our children could be left without the enormous financial opportunities we are passing down to them.
While the statistics may not be in our favor, parents can be proactive, teaching children the basics, and there is nothing wrong with starting when they’re as young as 3 years old. There is plenty of information in books and online with multiple perspectives and opinions, but experts agree that parental education is far better than leaving kids to figure out money on their own.
Many of us may remember our parents telling us that money doesn’t grow on trees. For some, that may have been the extent of their financial educations growing up. But why not teach children exactly where money comes from, how they can get it and what they should do with money once they have it?
At an early age, children can learn that the toys they want and the candy they like cost money, and even a 4-year-old can participate in the transactions, handing mom’s cash to a store clerk before walking out the door with their bag full of loot. But that’s just step one. By the time kids are in school, they can begin to learn the value of money and the best way to do that is by working for it.
Whether they’re getting an allowance for chores at home, earning through a babysitting gig or mowing a neighbor’s lawn, children can learn first-hand that dollars come from work and sacrifice. But the lessons should not stop there.
Once young people have money, parents can teach them to make good choices, such as establishing savings accounts, giving to charity, and making sensible spending decisions. If young people can learn to avoid impulse buying, budgeting skills, and how to be content with what they have, they can reap financial benefits far into the future.
After they get jobs, learn to save, budget, and experience the joy of giving, why not teach young people about investing? They can open college savings accounts, see the power of compound interest, and have a stake in their college educations. More importantly, they will have begun a journey of money management, saving, and investing that could last a lifetime.
In the end, this childhood education could help save the family fortune.