Showing Kids the Path to Financial FreedomMost of us could probably say that if we knew then what we know now, we’d be in a much better place financially.  So why is it that kids don’t learn the right things from their elders, generation after generation?

I think that part of the answer is that a lot of parents never really had that drive to get out the rat race and just consider the day-to-day work-until-you-die part of the circle of life.  Most of the children of these parents will probably just accept this path in life as well.

I think another possibility is that kids hate to listen to grown-ups.  As they continue to grow up, they get a mindset that their generation is different and their parents just don’t understand (Fresh Prince, anyone??).  Usually by their teenage years, a lot of kids pretty much shut their parents’ advice out anyway.  They look at unsolicited advice as lecturing.

In my world, my parents got a little closer to getting out of the rat race in that they started a small business.  But that’s as far as they were willing or able to take it – they were never able to step out of it or there would be no business.  On the flip side, my grandfather retired in his forties and this intrigued me a lot.  He was a very smart man who would see people running one way and would always go the other.   What I should have done was ask more questions from him, but instead, I tried to take some educated guesses on what he did and follow in those footsteps.  He passed away when I was in my mid-thirties but his success in early retirement is always something I aspire toward.

So how do you go about putting kids on the path toward financial freedom?

I’m definitely not an expert in the area (at least so far!!), but I have made it my mission to ensure that my daughter, who’s currently five years old, understands how to succeed.

I strongly believe that you can’t force a child to do something in life.  Telling your kids that they need to do this or be that will generally backfire.  I personally don’t believe that you should do that anyway.  I’ve said that I don’t plan on just handing things over to my daughter – I want her to understand the importance of money and working.  However, I also want her to understand the importance of leverage and having your money work for you.

I think it’s critical that you start teaching your kids about money at an early age so they have a good foundation.  From there, they can continue to expand and learn on their own through experience – the key is having some direction to start with and guidance when needed.

My wife and I have already set a precedent that when our daughter wants something, she needs to save her money for it.  When she gets money for her birthday, Christmas, or generous grandparents, she saves it.  Right off the bat, she knows that half of it goes in the bank.  The other half is hers to save or spend.  Eventually, we’ll start taking that bank money and discussing investing it in dividend stocks.

Since she’s only five, I work on giving her simplified examples of investing her money and making it work for her.  Our most successful bout of this was when we had a garage sale last year.  She wanted to have a lemonade stand for it so I saw this as a perfect opportunity.  I made her use her money (we did throw in some) to buy the lemonade and small bags of chips.  After all was said and done, she was so excited when she ended up with more money than she started with… definite win!

I’ve also had my unsuccessful attempts.  One day, I took out a piece of paper and over-simplified how the bank gives us money to buy a house which we let other people live in. The people in the house pay us rent and we use that money to pay back the bank with some left over.  She paid attention to every word… I was high-fiving myself in my head for this one.  Then when we were done, she got up and left, walked past her mom, and said “BOR-R-R-R-ING.”  Dang it – well, you can’t win ’em all!

The other thing I’m trying to be conscious of is setting a good example and discussing it with my daughter.  Rather than being a family that doesn’t discuss money, I believe it’s important to do the opposite.  I try to be open when she asks about bills or my job.  And I talk about my plans for financial freedom and retiring early and, more importantly, the “how” part of it all.  I enjoy her curiosity (albeit brief) on this.  We’re closing on our second rental in the next couple of weeks and I make sure she understands why we’re purchasing it and the high-level version of how each part of the process works.

My long-term goal is not to dictate to my daughter that she needs to do this or do that.  My goal is for her to understand that by having her money work for her and building passive income over time, she can become financially free.  If she can make that happen, then she’ll be free to pursue her dreams without the worries that lack of money can bring.

Is showing your kids the path to financial freedom on your radar and how are you handling it?  If you don’t have children, what are your observations of kids that you know – do they have the right guidance toward the possibility of financial freedom… or money in general?

Thanks for reading!!

— Jim

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Showing Kids the Path to Financial Freedom

4 thoughts on “Showing Kids the Path to Financial Freedom

  • December 9, 2015 at 3:03 pm
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    My son is only two so it’s still a bit too early to teach him about money. We’ve created a dividend portfolio for him and we plan to have him slowly managing it himself as he grows older so he can understand the power of compound interest. I like your idea of that kids need to save money for something they want. The idea that money doesn’t grow on trees is something good to teach to kids.

    Reply
    • December 9, 2015 at 3:10 pm
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      That sounds like a great plan to get your son going! If more kids understood how powerful compound interest is, they would probably be much better off financially in the long run.

      — Jim

      Reply
  • March 16, 2017 at 10:09 am
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    I love my parents, but the worst thing they ever did was to forbid the conversation of money at the dinner table (or anywhere else for that matter). After high school graduation, I went into the world with no understanding of personal finance. I understood how to get a credit card and that making minimum payments is what you did because that’s what my parent’s showed me. Eventually, my parents retired with minimal savings and only social security as their retirement plan. I didn’t wake up to my personal financial disaster until eight years ago.

    Now, we talk openly to our son (9 years old) about money at the dinner table. We talk about how credit cards work and that I have to pay ours off every month or the bank charges interest (which we don’t describe as a ‘fee’, but rather a ‘penalty’ for borrowing their money). Our friends are amazed when our son can explain needs and wants, credit cards, interest, etc. I’m even explaining to him how our real estate properties work, albeit in kid terms, when we play Monopoly (his favorite game).

    I wish I would have done this with my daughter who is 25. I was a poor role model for her, doing exactly what my parents did. She’s listening to me know, because she sees how passionate I am in protecting her from making the same mistakes I made.

    Kids learn from modeling as much as our words. Always remember that those little eyes and ears our watching when we decide to break our “plan” and buy some cool shiny stuff.

    It’s twice as hard to get them to do what we say after they’ve watched we’ve done.

    Reply
    • March 16, 2017 at 10:47 am
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      Hi Colin – sorry to hear about your parents situation now and the position that helped put you and your daughter in as well.

      It sounds like you’re on the right track now though. That’s awesome that you’re getting your son “in-the-know” and teaching him to understand the importance of how money works. I’m sure he’ll grow up to be a rockstar when it comes to this stuff!!

      Definitely agree that actions speak louder than words. The best thing we can do as parents in the financial realm is become successful at it, which will likely be learned intrinsically by our kids to set them on the right path.

      — Jim

      Reply

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