Legendary investor Warren Buffett has said that the biggest mistake parents can make when teaching their children about money is not starting early enough.
Many parents may wait until their kids reach their teens, but Buffett suggests starting as early as when they’re in preschool. Research supports this: A Cambridge University study found that children are already able to grasp basic money concepts by age 3 or 4 and have a basic understanding of their future financial behavior by age 7.
A money survey conducted by T. Rowe Price found that only 4% of young adults said their parents started discussing financial topics at age 5 or younger, some 30% said age 15 or older and 14% said not at all.
Buffett suggests teaching your children to think of creative, out of the box solutions. One activity to encourage this may be asking your children to think of how to repurpose trash into useful household items (such as bottle caps for checker game pieces). Another activity is to take the kids to an art museum to discuss the different styles, then ask them to create their own art at home with any tools they can brainstorm (cotton swab, fingers, etc).
Another important lesson is to learn how to differentiate between wants vs. needs. Each time they receive money (allowance, chores, etc) they can place them into separate jars for spending and saving. Another activity may be to have children cut pictures from magazines of items they wish to purchase and label them as a “want” or a “need.”
You can also teach your children how to differentiate between price and value, which can help them see past advertisers’ persuasive techniques and determine what is worth paying for. One exercise you can use is to make a grocery list and compare the items at different supermarkets. Another exercise is to dissect an ad with them in terms of what is being sold, what catches their attention and how does the ad make them feel, what is the advertiser’s message, and how are they attempting to persuade the buyer?
A final lesson Buffett suggests is teaching your children how choices impact outcomes. For example, you may explain how buying an entertainment item may prevent you from affording a necessary home repair and discuss the consequences of either decision. You can encourage money-saving habits by asking children to consider the cost of convenience; for example, waiting to rent a movie from the library instead of paying to stream it.
Discussing and demonstrating financial concepts early in your children’s lives can set them up for lasting financial success. To inquire about our financial services, please contact us at 515-557-1860 or email us at email@example.com. TABER Asset Management is a fiduciary, investment management and financial planning firm serving clients from across the U.S..