Our education systems today do not teach our children and young adults what they need to know about personal finances. College graduates leave college with hundreds of thousands of dollars in debt and unable to explain something as simple as what a stock is or how they plan on retiring one day. Therefore, it's important for parents to give their children the financial head start they need at a young age. Financially literate kids grow up to be successful investors and financially free adults. Learn how you can give your child a great financial start in life below.
1. The most important personal finance lesson that you can teach your kid at a young age, is the importance of investing and saving as much money as possible and the power of compounding. Getting a child into the habit of trying to save as much money as possible at a young age will produce an adult who understands that a person should always spend less money than they make and aim to save and invest a portion of their salary each year. If you can get your child to understand the power of compounding interest then they will realize that the more money they invest, then the more their money will grow at a faster rate and make them even more money over time. There is no better time to start educating a child on these important money lessons then when they are very young.
2. Setting up a college savings account for your child can be beneficial for a variety of reasons. For one, letting a child know that they have an account that has money deposited into it every so often for them to go to college may likely increase the odds that your child will opt to further their education by going to college. Let's not forget to mention that the more money you can save for your child in this account, then the less your child will have to take out in student loans for college. The earlier you start, the larger the final sum in the savings account will grow to be.
3. Although many families disagree with letting a child in on how much their parents make or what the family financial situation looks like each month, this can be a great way to teach your child the importance of budgeting and planning. When a child actually sees how much you and your spouse make each month and realize that things costs and there are bills to be paid, then your child will likely be more eager to ask him or herself "What can I do?" This too will produce an adult who is more likely to be aware of how much he or she spends each month and to create a budget that works for him or her and stick with it.
4. Lastly, the greatest gift any parent can give their child that is even greater than a trip to Disney World, is the gift of stock. Buying stocks for your child or selling your shares and/or transferrineg ownership of your stocks into your children's name is a great way to lay the foundation for building your child a nest egg that will help him or her hopefully retire early and be able to support their own family in adulthood. Buy stocks in companies that pay have proven themselves to be great companies to own for many years and are companies that have been known for paying their shareholders a hefty dividend payment for many years. I currently own shares of McDonalds, Walmart, Proctor and Gamble, General Electric, and Johnson and Johnson in my portfolio. All of these companies have been around for many years, pay out good dividends, and should continue to be around for many more years to come. If you are looking for a great place to start investing for your child, then consider www.sharebuilder.com. This is the online brokerage firm I use to buy stocks for my portfolio.
In conclusion, there is no better way to prepare your child for the future than by giving them a financial head start and instilling in them money lessons that they can take with them wherever they may go in life. Just think. Would you want a child who is financially independent and has the financial freedom to do what they want with their life because they are financially smart or do you want a child who grows up to be burdened with debt, who is struggling to make ends meet, and is living paycheck to paycheck? The choice is yours. Good Luck