I was reading an article by a regular columnist in the Financial Review recently. The article was about the author’s youngest child starting school and deciding on what gift to give him on his first school day… (after being surprised that people actually buy gifts for their children when they start school, I read on)
The article went through her decision to not buy a toy, as it is opened, played with for a few minutes and set aside.
The second option she considered was a nice watch, but she felt that he did not need one since his multiple electronic devices had clocks on them. (At this stage I thought of my own son who just started school and thought to myself I am sure he does not have any such portable devices, especially that he would take to school.)
Finally she came to conclusion of putting funds into a suitable investment for him.
What a great idea – Investing money for your children! She decided the investment was to be something that could teach her child about investing, a life long lesson.
Many would argue a prep aged child is too young, but financial lessons have to start somewhere. The concept of this is that they learn the power on investing, the fact that money earns money, which when re-invested earns more money. Over time they see the real power of savings. With managed and share investments children also experience what can happen when markets drop for reasons outside their control, thereby learning the hard lessons of investing.
We have all thought, “Gee I wish I had started investing earlier” and our early years really are the times where life-long habits are instilled. There are many lessons we can try to teach our children, but respecting money and the fact that it must be worked for are probably the most important. Offer them incentives that if certain tasks are performed pocket money will be received. At the same time I do not believe children should be remunerated every time you ask for something to be done, as this sets a bad example for later in life.
Saving incentives can be taught early and could include matching money deposited into a savings account. Ensure that primary aged children have and actively add to school banking programs. When children are old enough, use simulated investment clubs to get them thinking about the share market and other investment types. There are also a number of Exchange Traded Funds which may be suitable initial investments, where the funds from the shares are invested in the share market itself and tend to follow the market.
Give your children the best gift you can, as early as you can… knowledge!
*** To further help educate children as they get older there are a number of excellent books you should recommend they read (and maybe even read yourself). Examples include ‘The Richest Man in Babylon” and the well know “Rich Dad, Poor Dad” and “The Millionaire Next Door”.