Kids & money: 8 common mistakes parents

- make (Part 2) Andrew Lendnal, CEO, BREAKTHRU KIDS


HEADING:

Kids & money: 8 common mistakes parents make (Part 2)

ATTRIBUTION: Andrew Lendnal, CEO, BREAKTHRU KIDS

4. Starting the Payday to Payday Syndrome

If a five-year old child takes a dollar and spends a dollar, the child will do the same at ten, at fifteen, and then at twenty. The habit of spending it all will stay with your children into adulthood, and they will grow up to live payday to payday. If you make a million and spend a million, you are still poor. Being wealthy has nothing to do with how much you make. It has to do with how much you keep!

These habits will set your child up for financial ruin. Explain to your child when you purchase something at the store and spend all you have, the store now has all your money. You have nothing but the item you bought, which may or may not last.

Our country is notorious for spending more than it has, and the citizens of this great country are following down the same path, but the problem is we are not allowed to print more money like the government, because it's called counterfeiting.

Just ask your child this simple question, "Would you like to be Wealthy or Poor when you grow up? If your child answers wealthy, then you must teach your child the 10/10/10/70 concept. Children can easily learn this formula and follow it throughout their lives.

• Give 10% to the charity or cause of choice. When children become givers, they become more aware of others and less selfish. Giving starts the receiving process and is a sound financial habit.



• Invest 10% in shares, bonds, managed funds, businesses, real estate, money markets, etc and build your financial security through allowing your money to work for you.



• Save 10% for your future and emergencies. The savings portion represents the liquid cash necessary for emergencies in case of a job loss, medical expense car repairs etc. Your child does not have to worry about this yet, but they will be prepared for when they go out on their own and have plenty of money saved for emergencies.



• Spend 70% wisely on what you need and want. Always ask yourself the question, do I need this, will I use it, do I love it, and do I have to have it. If you can answer yes to all these questions then by all means buy it. If you can't then the item is not worth your money! This is how you become a wise consumer.

Creating the habit of dividing your money before you spend is essential to your financial future.

Starting your children on the 10/10/10/70 concept will guarantee your child financial security, because your child will practise giving back, paying themselves first and living within their means. This will become a habit and be the default action your child knows and lives by.

5. Not Starting a Savings Account Early

The average family in New Zealand today spends 110% of its income, and most people of retirement age have little or no money of their own to live on after retirement.

Many people practise the habit of putting money into the bank until they need it to pay bills or want to spend it on something they'd like. While philosophically, it might seem that they're saving money because it is set aside, what they are really doing is postponing their cycle of spending. This is also the liquid cash that many financial advisers speak of in case of a job loss, medical emergency, or car problems.

Many children and adults feel that when they save money, they will have less. However, this is a crazy idea because when you save money, you actually have more! "Save your money" really means: "Pay yourself first!"

Saving money sets your child up for a successful future. When you instruct your child to save his or her money, explain that they are paying themselves first. Consider the following:

• Most children think saving money means to save for a bike or toy, but all that is, is prolonging your spending. Children need to get in the habit of saving for the future and paying themselves first.



• It has never been more important than it is today to teach your child the habits of saving and investing, because welfare benefits, company retirement plans and the government is putting more and more responsibility on the individual.



• No one will take care of your retirement but you, and the sooner you think about retirement the faster you will get there.



• You can save money by asking for a discount, wait for the item to go on sale or use coupons.



• Due to the internet, you can now find the best price for just about anything, and it doesn't mean you have to buy it used.



• It feels good when you can buy what you want and save money at the same time.



• Savings is the act of saving something- you can save money in the bank, save money by getting a better price, or save your self from financial ruin.



• Wealthy people rarely pay full price for anything.



• There is nothing wrong with being cheap, asking for a discount or saving your money. You can laugh your way all the way to the bank and retirement, when you're wealthy and your friends are poor!

6. Creating Lifestyles Kids Cannot Afford

Children have missed learning how to want for things, earn things and overcome obstacles to get what they want. Many parents are providing lifestyles to their children that they simply cannot afford. At a number of colleges kids are driving nicer cars than the teachers are, wired to the hilt and dressed impeccably. Most of these kids do not have jobs. Their parents are footing the bill for the lifestyle the kids are enjoying and becoming accustomed to - for free.

• Parents who perpetuate this lifestyle for their children are going to pay a huge price down the road when the kids leave home.



• The boomerang effect - grown children moving back in with their parents - has a lot to do with the inflated expectations children have about their lives when they leave home. They can't afford the lifestyle their parents gave them at home, and they have no skills to create it for themselves. What do they do? They turn to credit cards to fund the only lifestyle they know. Parents are spending way too much money on their kids and unwittingly setting their children up for failure.



• It's not what you leave to your children that matters most, it's what you leave inside your children that counts most.



• Experts have said, giving your child everything and not allowing them to earn things on their own is damaging to their self-esteem and ability to survive in the real world.



• This happens in all income levels wealthy, middle class and poor. Kids wearing $100 shoes in low-income areas, girls walking around with Gucci purses in middle school is crazy. What do they have to look forward to? Ferraris at graduation?



• Children are being taught to put more emphasis on looking wealthy versus creating wealth.



• More children than ever before are being diagnosed with ADD and ADHD, this could be because we live in an "instant gratification culture."

To be continued next issue...