Talking with your kids about money can be tough and that’s a shame. With KiwiSaver now a reality it is even more important than ever they get up to speed - early.
You may not owe your kids a car when they turn 16, you may not owe them a university education, you may not even owe them an allowance, but you do owe them an education in money.
To get started, here are 11 lessons about money they should learn before they start out on their own.
1. Debt sucks.
Yeah, adults know that word too (you may not normally use such blunt language). That’s OK, the shock will give your words maximum impact. Or you could say, when you go into debt you give someone else control over your life and that’s a bad thing.
2. Credit card companies are in business to make money.
They are not to help people out – they are not a life line. Though it may seem like they really like you – after all, they send you ‘convenience promotions’ and give you perks like ‘points’ – their true mission is to keep you in debt until you die. That said, credit cards can be a wonderful convenience… if you don’t let them trick you into spending more than you have.
3. Pay yourself first.
No, that doesn’t mean buying a IPod or DVD player with your first pay. It means putting money away for emergencies and goals. Your savings account can keep you out of debt when you hit those inevitable potholes in the road of life. Debt enslaves you, but a savings account keeps you free. It’s the little things that get you, you could spend $4.95 on a Starbucks every day. Or not. Investing just $4.95 a day could earn you more than a quarter-million dollars in 30 years. Which will it be; a latte now or a lot of life in the future?
4. Invest in a world market.
Savings accounts are great for emergencies and short-term goals, but to reach your long-term goals, you need the power of the share market. With investing, long term its simple to get market matching returns that, over time, will make you wealthy. The best part may be that you can refer to yourself as a ‘shareholder’ at your friends’ birthday parties.
5. Start a regular investment pattern as soon as you start earning money.
Think of it as saving for financial independence instead of retirement. Whatever way you call it, saving early beats saving late every time. A long-term commitment investment fund (not an insurance company plan) can make you a tax-free multimillionaire.
6. (Take a deep breath) Now let me show you the family budget.
Here’s how much money we make. Looks like a fortune right? OK, here’s where it goes. See how much goes in taxes, right off the top? Now we subtract this much for our savings, and this much for the mortgage, and this for the car, and this for your education, and this for food, and this for… hey wake up!
7. Budget isn’t a bad word.
You need a budget too. Track your income (allowance, cash gifts, babysitting and lawn-mowing money) and your expenses. Then you can figure out how long it will take to save up for those roller blades or car you want. Budgeting doesn’t have to be hard. It can be as simple as ABC. A) – Pay yourself. B) – Pay your bills. C) – Spend no more than what’s left.
8. Keeping up with the Joneses next door is a sucker’s game.
Read The Millionaire Next Door. The Joneses could be head over heels in debt and sick at heart over it. The new Audi convertible is probably leased. Don’t let the glitter fool you.
9. Don’t trust just anyone.
When it comes to your money, you can’t abdicate responsibility. Many financial adviser’s have conflicts of interest – their advice can be designed to maximise their commissions, not your money. Others are simply incompetent. No one cares as much about your money as you do (except your parents, who only want the best for you of course).
10. Money can’t buy happiness, or love, but it can help you avoid many kinds of misery.
You’ll have to find your own happiness, but it’s easier when economic hardship isn’t dominating your life. So don’t even try to buy happiness. Instead buy security for yourself and your loved ones, then find happiness in them.
11. Take numbers 4, 5 and 9. Start a KiwiSaver plan right now.
Parents do it for your kids, Grand-parents do it for the grandkids if the parents can’t quite afford it. With regular investment from early days - you may never have to worry about the future again.
Not sure how – talk to us.
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