Irish Financial Independence & Personal Finance Podcast

Episode 9 - What we teach our kids about financial independence

Wednesday 10th July 2019

Find out what we teach our children about financial independence and how we try to get them to see how the world looks from an investing point of view.

Examples of what we teach our children:

  • That leadership is just as important as good grades.
  • That there are alternative paths than just getting a job when they get older - that they can also own their own businesses.
  • To try not to fall for the work / spend trap and ways to show them from a young age about this trap.

Many examples are covered in the episode, so enjoy and if you do have any feedback, feel free to let us know!

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How you can teach your kids about finances

As an entrepreneur and a father of three, I’m always thinking about how I can teach my kids how money and the business world works.

At ages two, five, and eight, some might say that it’s too early to teach kids about money, but it’s actually never too early to plant seeds which will help them be more financially savvy than their peers.

Coming from New Zealand and having never really worked a traditional job, the contrast with my wife’s upbringing is quite stark - she comes from a traditional Irish family, and from what I’ve seen the Irish values are very much go to school, get good grades, and find a safe secure job.

There’s a contrast between this and the message I want to give our kids, and it’s really important to me that my sons have access to a wider range of learning than simply going to school and getting good grades. From my experience, the skills they’ll need most to be successful in life go way beyond the classroom, and it’s not too early to help them build these skills.

Here a few ways to help your kids learn about financial independence.

Help them to learn the value of their own money

By allowing your kids to make financial mistakes while the stakes are low, you give them the foundations to succeed when the stakes are high.

In my experience, a kid with birthday money or pocket money can feel it burning a hole in their pocket, and are desperate to spend it. Also in my experience, they tend to spend it on instant gratification – toys that only entertain them for 10 minutes. It can be tempting to encourage them to save it, or to spend it on something that we know will provide more long-lasting entertainment.

But while they are still young, we shouldn’t be telling them no – they need to learn the lesson for themselves. Follow the inevitable disappointment when they have run out of money with the opportunity to earn a little more by helping with some chores around the house.

This is the work-spend cycle. We work, earn, spend, and work again. Your child will learn that when he has no money that the way to get it is to sell his time by doing work. He also learns how difficult it can be to save money and how quickly it can be spent.

It’s only through going through this cycle several times that we realise there may be another way. Try to help him to see that pattern and to make those mistakes now rather than when he finishes college like most of his peers will.

Spark their curiosity

Anyone with kids will know how curious they are. At certain stages it feels like the only question I am answering is “why?”. This is a really great opportunity to encourage your children to think about how the world works – no matter what their age is.

Take, for example, rush hour. I had my eight-year-old in the car on Friday afternoon, and traffic was crawling. My son asked why we weren’t moving, and I told him it was called rush hour, which he found hard to understand because the cars weren’t moving. He asked why there was so much traffic, and I said it was because all the daddies are going home from work now. He noticed that I had finished work hours ago, and that I don’t have to drive anywhere to go to work. This gave me the opportunity to explain that I have my own business and I don't have a job where I need to work nine-to-five.

Kids in school are taught to go down a certain parth and these little conversations are me trying to challenge my kids to see an alternative route that they can choose if they want to - they don’t have to go down the path that society expects them to go down.

Teach maths with a financial context

To be successful in business, the best possible foundations we can give our kids is a solid understanding of how money works. At a young age, this starts in maths class.

If kids can grow up understanding maths, and in time, how compounding interest works and how to read a balance sheet, they’ll have a great head start when it comes to business.

For a start, try to associate numbers and maths with money. Instead of 1+2, it’s €1+ €2. Using the context of money is more tangible and more relatable to the real world, and it’s a nice way to introduce the concept of compound interest.

Another idea is to introduce what I call the “Daddy bank account”. Give your kids the opportunity to either spend their money, or bank it with you, earning 5% interest per month. It’s a high return of interest, but it’ll help them to understand that they can get a good return from investing their money – why spend the money, when you can invest it and get a return of €5 each month?

Relate business to their interests

Money, and businesses, make the world go round. Plant the seed early by introducing the concept that toys have a financial value, and that the toy shop is a business that makes money from selling toys. It’s not a magical place, it’s not a charity, toys have a price and they need to exchange their money for the toys they want.

Even explaining that people work there to earn money, to buy things that they need for themselves and their families helps kids put the pieces of the puzzle together, and the more they see how things work, the more they’ll want to learn more.

If you want investing to become second nature for your child, it’s a good idea to start opening his or her mind up to the possibility that they could own a part of a company. A good way to help them relate to this is by talking about companies or industries that they’re already interested in.

Take a game like Angry Birds for example – why not suggest that he or she could by shares in Rovio, the company that built Angry Birds? I’m not encouraging this as a sound financial option, but by taking what they see or use in their every day life – toys they like to play with, games they enjoy – you can help to open up their minds to investing as a way to make money.

These are a few suggestions that I use when trying to encourage my kids to think differently about money. Hopefully they give some ideas that you can try at home to see if you can get your children get into good money habits from an early age.

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