Investment is a long-term game. You can’t expect to gain much after just one week or one month. The most impactful investment you could ever make is to raise children, though the rules are no different: You can’t expect them to learn basic reading, writing, and math skills in just one week or one month. If you set out to teach them financial literacy, then you absolutely must adopt a long-term mindset.
Here are three tips that helped me accomplish that for my own three daughters:
First, set a goal and share it with your children. When my daughters were still very young, I told them that one day they would all go to college. To cover some portion of the expenses, I opened 529 college savings plans for each of them. My husband and I hoped that with enough time, our savings would cover 100% of our kids’ education; But life is rarely that simple – especially for young families. After purchasing our first home and working hard to raise our three babies during their most critical years, we realized that “some portion” would amount to just 10-50% depending on what schools they ultimately chose.
Looking back, I’m confident that it was a good decision to set such an ambitious goal. Maybe we couldn’t cover absolutely every college expense on our own, but we saved and invested as much money as possible and got further than we would have otherwise. By setting our goal early on and sharing it with our kids, we turned it into a clear family commitment that everyone worked toward. Our daughters knew that even though their adult lives felt like they were a century away (a feeling I often shared), they still had to prepare for them every day; They understood the importance of saving for the future.
Second, start early. We opened our first Education IRA for our eldest daughter when she turned one; We eventually did the same for our second and third child. Starting early gave us the leverage we needed to gain compounding interest and bear the market’s up-and-downs. For example, we initially invested just $2,000 in our eldest daughter’s account and didn’t add too much in the years that followed. However, by the time she turned twenty-one, the account’s balance grew to over $8,000. It performed strong and managed to quadruple after 20 years in spite of historic volatility such as the 2008 housing bubble burst.
It's best to teach children about basic finance as early as possible. With a bit of practice, my children learned the difference between “wants” and “needs.” By getting them involved in planning family vacations, we helped them understand the value of keeping a budget. Budgeting helped them to limit their wants, which was especially important as they came to value our long-term goals of saving for college and other future expenses. For instance, each of our daughters had a budget of $20 per day to spend on anything they wanted during vacations. For young girls, the choice was clear: They could spend $20 on random wants – candies, videos and so on; Or they could wait until the end of a five-day trip to buy a large toy for $100. I’m happy to write that I have seen them with more toys than candy wrappers.
Third, be patient. In playing the long-term game, being patient means that you must maintain your confidence, optimism, and consistency while watching events unfold. It’s hard to not to withdraw whenever the market nosedives like in the Great Recession of 2007-2008. Warren Buffett, one of the greatest investors of all time, once said that it’s wise for investors to be “fearful when others are greedy, and greedy when others are fearful.” My husband and I were affected by the recession like everyone else, but we continued to make monthly contributions to our children’s 529 college accounts. I’m glad that we didn’t pull out of the market, but I have to admit that I hesitated and lowered our monthly contribution for 3 years. After the market significantly rebounded a few years later, I came to regret acting out of impulse instead of with patience—but I don’t plan to repeat that mistake.
Teaching your children how to manage their money will also require patience. I have found that learning through example can be very effective. If you teach them how to “walk the talk” with real life examples, then you can be confident that they will apply your lessons effectively. I showed my daughters how I tracked my own expenses using a spreadsheet and even hired them to help me with the data entry for my receipts. Did they actually help me save time? Not at the beginning. It took them several rounds to learn common Excel functions such as sum, percentage conversions and so on. I could have done it much more efficiently on my own, but the most important thing for me was to teach them these skills that they will now use for the rest of their lives. I just wish that more schools would include financial literacy in their curriculums; Every child deserves to grow up feeling confident in their spending habits.
As a mother of three, I have tried and am still trying my best to raise my children with the necessary financial skills to not only survive, but also thrive in this ever-changing world. I know I’m not alone in this struggle, so I’m happy to help other parents and kids achieve their financial goals as well; That’s why I’m excited about the upcoming Parent-Youth Finance Workshop. 50% of proceeds will go to the Catalyst Youth Network, a nonprofit organization for underprivileged youths in Oakland. This is also a way to teach my children along with other youths to give back to the community. No matter how successful we might become, we must remember that giving is an inseparable component of personal finance.
I’m here to help you. Please visit my website, GiftedCoaching.info, and contact me at lucy@GiftedCoaching.info for more information.