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Maintaining Generational Wealth: How to Teach Your Kids to Be Financially Independent!

Hey parents! In today's article we’re going to talk about how to prepare your kids to be on their own path to financial independence so that your hard-earned generational wealth stays in the family! There’s a lot of people who are on their Financial Independence / Retire Early journey right now, and one of the more common reasons that people give for working towards that goal is their kids. Many also want to leave their kids plenty of money and wealth when they pass on. While this is an admirable goal, statistically 70% of your kids will lose all your money that you worked so hard for after you pass on, and that’s just in the first generation! In this article we’ll learn about a few ways to start coaching your kids now to help your family be in the 30% that maintain their generational wealth.



 

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three generations of sons


Why Teach Kids About Money - Maintaining Generational Wealth


There’s several reasons why 70% of second generation wealthy people lose their money, but the main one is they don’t know how to make money themselves. Often this happens because their parents grew up poor, and so when the parents created their wealth they wanted their children to grow up having everything they could ever ask for. But this leads to children who don’t have the same skills and dedication as their parents, and therefore don’t know how to generate more wealth after their parents pass on.

Now I know how hard it is to not give your kids everything that you never had as a kid; and you’re certainly not alone in finding this difficult. But the fact of the matter is, your kids need you to coach and guide them, and even force them when necessary, to grow in their financial understanding and literacy.

 

Key Points to Consider:

  • Foundational Knowledge: Early financial education provides children with a foundational understanding of money, budgeting, and saving, enabling them to make informed decisions later in life.

  • Smart Decision-Making: Teaching kids about money early instills the ability to differentiate between needs and wants, encouraging wise spending habits that last a lifetime.

  • Building Confidence: Financial education empowers children, boosting their confidence in handling money matters and preparing them for real-world financial challenges.


 

As parents, you are the primary influences in your children’s lives, shaping their attitudes and behaviors towards money. By embracing the opportunity to teach financial literacy, you’re not just preparing them for the future; you’re shaping a generation capable of making sound financial choices, fostering stability, and achieving their dreams. If you do this right, your kids won’t need your wealth to be wealthy themselves, they’ll have already made themselves wealthy independently!




Understanding the Difference Between Wealthy and Rich: Lessons from "The Millionaire Next Door"

In our pursuit of teaching kids about money, it’s essential to distinguish between being rich and being wealthy. "The Millionaire Next Door" offers invaluable insights into this distinction. While being rich often conjures images of opulence—flashy cars, grand houses, and extravagant lifestyles—being wealthy takes a subtler, more sustainable route. True wealth is rooted in financial independence, intelligent investments, and prudent living. It’s about adopting a mindset that prioritizes long-term financial security over momentary displays of affluence. By understanding these principles, we can impart crucial lessons to our children, guiding them away from the allure of materialism toward the path of lasting financial stability.



 

Key Points:

  • Financial Independence: Wealthy individuals prioritize financial freedom, ensuring they are not beholden to external financial pressures. Teaching kids this concept instills the value of self-reliance and resilience.

  • Smart Investments: The wealthy understand the power of investments, allowing money to work for them. Introducing kids to basic investment concepts fosters a mindset of financial growth and stability.

  • Living Within Means: One of the fundamental principles of building wealth is living within one’s means. Teaching children about budgeting and frugality establishes a foundation for responsible financial habits.

  • The Wealthy Aren’t the Ones on TV: One of the most intriguing aspects about the American Millionaire is that they aren’t who we typically think of. The average millionaire is a blue-collar worker who owns their own janitorial service, or a teacher on a public school salary. They’re everyday folk, just like you and I.


 

As parents, our role extends beyond providing for our children’s immediate needs; it involves equipping them with the knowledge and mindset to thrive independently. By delving into the wisdom of "The Millionaire Next Door," we not only teach our kids about the nuances of wealth but also empower them to make informed, responsible choices. In doing so, we pave the way for a future generation that understands the true essence of financial success: a life built on stability, smart choices, and enduring prosperity.




Age-Appropriate Financial Lessons


Navigating the waters of financial education can be tailored to fit the specific age groups of your children. Here’s how you can instill valuable money lessons at each developmental stage:


Preschoolers (Ages 3-5):

This might seem like too young of an age to start thinking about finance, however basic concepts serve as the building blocks of financial literacy. Utilize the simplicity of piggy banks to introduce them to fundamental ideas about saving, sharing, and spending. Transforming these concepts into a game not only makes learning engaging but also sets a positive tone for their financial future.


Elementary School Kids (Ages 6-10):

As kids step into elementary school, it’s time to introduce practical applications of money management. Tying allowances to chores not only teaches them the value of hard work and earning income, but also lays the groundwork for budgeting. Encourage them to set savings goals for toys or games they desire, teaching them the art of saving and delayed gratification.


Pre-Teens (Ages 11-13):

This age group is ready to grasp more nuanced financial concepts. Engage them in discussions about needs versus wants, emphasizing the importance of distinguishing between essential purchases and desires. Encourage them to save for bigger items, fostering a sense of financial responsibility. Introduce the concept of interest, demonstrating how money can grow over time, sparking their interest in prudent financial decisions.


Teenagers (Ages 14-18):

Teenagers are on the brink of adulthood, making it crucial to delve deeper into financial education. Provide them with hands-on experience by opening a mock investment account, allowing them to experiment with virtual money. Discuss the significance of part-time jobs, instilling a strong work ethic. Guide them in saving for college and long-term financial goals, preparing them for the financial independence that awaits in their future.


By tailoring financial lessons to their age and developmental stage, we not only make learning about money relatable but also empower our children to make informed decisions as they grow older. These age-appropriate lessons serve as the foundation upon which they can build a lifetime of financial security and success.




Key Money Skills to Focus On

When it comes to teaching kids about money, focusing on specific skills is essential. Here’s a breakdown of key financial skills to instill in your children:

  • Budgeting: Break down the basics of budgeting. Teach your kids to allocate money for different purposes: saving, spending, and giving.

  • Investing: “Pay yourself first.” Introduce the concept of investing. Start simple, explaining stocks and bonds. Discuss the power of compound interest. Use compound interest to discuss why putting money into investments should be the first thing you do with your income.

  • Saving: Encourage the habit of saving. Discuss different saving methods, especially High-Yield Savings Accounts like the one’s from Marcus.

  • Spending Wisely: Foster responsible spending habits and impulse control. Teach them to think before making a purchase and prioritize needs over wants.

  • Earning: Teach the value of hard work. Encourage entrepreneurial endeavors and part-time jobs. Earning their money enhances the understanding of its value.




Practical Tips for Parents


Moms playing with kids

  • Leading by Example: Your actions speak louder than words. Show responsible money management, and your kids will follow suit.

  • Fun Learning: Make financial lessons enjoyable. Use board games like Monopoly or online apps that teach money management in an engaging way.

  • Age-Appropriate Resources: Utilize books like “The Berenstain Bears’ Trouble with Money” or our My First Finance Coloring Books for young kids. For elementary and middle school kids you can use our My First Finance Illustrated Books to start the conversation! Explore educational websites and apps tailored for different age groups.

  • Addressing Money-Related Questions: Be open to discussions. Answer their questions honestly, even if it involves family finances. Use these moments as teaching opportunities.




Overcoming Challenges


When it comes to teaching kids about money, challenges are inevitable. Here’s how you can overcome common hurdles and continue your financial education journey as a family:


Time Constraints:

Busy schedules often make finding time for dedicated financial lessons a challenge. However, integrating financial discussions into your daily routine can make a significant difference. Seize moments during family meals or car rides to discuss money-related topics casually. Transforming financial learning into a part of your routine not only makes it more manageable but also reinforces the importance of money management in everyday life.


Lack of Knowledge:


lady studying

If you’re reading this article you probably have a decent financial basis yourself, but it might not cover the full spectrum of financial topics. Maybe you know real estate like the back of your hand, but have never put a dollar into a Roth IRA. Or maybe you know how to build a profitable business from the ground up, but your idea of maintaining a budget is earning more money instead of reducing expenses. If you find yourself not as financially savvy in certain areas as you’d like to be, consider this an opportunity for growth—for both you and your children. Embrace the learning journey together. There’s plenty of free learning opportunities; from youtube channels and podcasts like The Money Guy Show and Dave Ramsey, to individual leaders and teachers using social media like Jaime with The Financial Enabler (@financial.enabler) or Lawrence with Green Collar Finance (@green_collar_finance). Make sure you’re getting a good spread of information so that you can make sound financial decisions for yourself, or reach out to experts like Jaime or Lawrence for advice! The point is,




Cultivating a Healthy Money Mindset


Gratitude and Community Building:

Instilling gratitude in our children goes hand in hand with the recognition that not everyone is as fortunate to have earned the wealth we possess. Teaching our kids to be grateful for what they have can be coupled with a valuable lesson in empathy and community building. Understanding that our financial well-being is not isolated but interconnected with the larger community fosters a sense of responsibility. It’s essential to impart the philosophy that “rising tides lift all boats.” By acknowledging our privilege, we can encourage our children to actively engage in community service and charitable endeavors. Volunteering together as a family not only reinforces the values of empathy and kindness but also provides a firsthand understanding of the impact one can have in uplifting others. Through these experiences, our children learn that financial education isn’t just about personal gain; it’s about creating a positive ripple effect in the community, contributing to a world where everyone can thrive. Cultivating gratitude alongside a spirit of community service ensures that our children not only manage wealth responsibly but also use it as a force for good in the wider world.


Mindful Spending:

Encouraging mindful spending is an invaluable lesson in the journey of financial education. Teach your children to think critically about their purchases. Engage in conversations about distinguishing between needs and wants. Discuss the impact of impulsive buying on long-term financial goals, highlighting the importance of thoughtful decision-making. By instilling the habit of mindful spending, you empower your kids to make choices aligned with their priorities. This skill becomes a guiding light, steering them away from unnecessary expenses and impulsive purchases, ensuring their hard-earned money is used wisely and purposefully. Through these discussions, they learn the power of conscious financial choices, setting the stage for a lifetime of prudent money management.




Conclusion: Nurturing Financially Empowered Futures


Remember that you are not just imparting financial knowledge to your kids; you are shaping the architects of their own prosperous futures. By instilling the principles of financial literacy, you are gifting them with more than just monetary wisdom; you are equipping them to navigate the complexities of adulthood with confidence and prudence. Through foundational understanding, age-appropriate lessons, and the cultivation of a healthy money mindset, you are setting the stage for a generation capable of not only managing wealth wisely but also using it to create positive ripples in their communities. Embrace this role as financial mentors with pride and determination, for in your hands lies the power to transform mere dollars and cents into a legacy of empowerment, resilience, and compassionate stewardship. Together, let’s continue to nurture financially empowered futures, ensuring that the next generation not only inherits our wealth but also our wisdom, enabling them to shape a world where everyone thrives.



Note: Certain links in this article are affiliate links. We are not associated in a direct way with any organization discussed in this article, we just share what we think are good tips for parents!

 

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