I normally talk about apartment building investing but I wanted to talk about another topic that I’ve slowly started to work on with my kids as they get a bit older.
I have four kids from 5 to 12, and while all of them are learning about money, I felt the two older ones (9 and 12) are ready for the next phase.
Here are the 6 Ways I’m teaching my kids about building wealth.
Lesson # 1: Practice Delayed Gratification
Sit each of your kids down and put some kind of treat in front of them (I chose a HUGE marshmallow that requires a knife and fork to eat!). Tell them that they can eat the marshmallow now, or, if they wait for 15 minutes while you go off and do something else, they will get another marshmallow.
Then see what they do.
Some of my kids immediately ate their treat. The others sat there, looked out the window, or got a book, and they waited for their second marshmallow.
Use this exercise as a teaching lesson about instant vs. delayed gratification, and then look out for other opportunities to learn this important lesson in life and in business.
Lesson # 2: Learn to Handle Money
We give our kids a small allowance ($10 per month). While chores are expected to be completed and are NOT paid for, we do give the kids opportunities to earn extra money. We set a price for the project and if more than one wants to do it, we do a reverse auction: the lowest bidder wins the project!
We then use the 80-10-10 rule for handling that money: 80% of it they can spend as they wish, 10% is saved and 10% is to be donated. This teaches them the importance of saving and giving back, two lessons that even adults have great difficulty with.
Lesson # 3: Read Rich Dad Poor Dad
I read this book when I was 35 and I was like “where has this book been all my life?” and I vowed not to make that same mistake with my kids.
I made my daughter read this when she was 9 years old, and she wasn’t ready for it (“It’s boring, Daddy!”). But now she’s 12, and I think I’ll try again!
The important messages in this book are the difference between liabilities vs. assets, the importance of minimizing your expenses, and the idea of passive income. Wow, powerful lessons.
Lesson # 4: Live Within Your Means
This is such an important lesson from Rich Dad Poor Dad, but you also hear it from other places like your grandparents and places of worship. Unfortunately, our culture teaches us exactly the opposite, so instilling this value in our kids early on is so important.
You can teach this lesson in so many ways each day, you just have to be on the look out for opportunities. This involves delayed gratification, discipline and saying “no” every once in while. This won’t be easy because most of the other kids get whatever they want.
Lesson # 5: Do a passive income project
This is a more difficult lesson to learn because it’s a little more abstract. It will require time and more maturity for your children to really learn this. Use examples your kids can understand. For instance, one example of a passive income business could be a gum-ball machine. Let’s say you buy it for $100 and put it into a busy grocery store. Ask your child to research the cost of the gum balls. How many gum balls do you think the machine could sell in a week? Have her calculate a profit and loss projection. Then talk about how much time this passive income business will require. Then talk about buying a second and third machine.
Related: What Constitutes Passive Income?
Lesson # 6: Make it Fun!
A lot of these lessons are so abstract and confusing to kids and so you’ll have to look for ways to make it fun. One way to do this is to play games, such as Cashflow for Kids and Monopoly. Or help them start their first business, maybe a lemonade stand, cutting the grass, baby sitting or shoveling snow – or maybe even gum ball machines! All of these projects require planning, investment, marketing and execution. If you already have some real estate investments, begin involving your kids in the business.
Teaching our kids about money and building wealth at an early stage is so critical. Unfortunately, it’s not taught in school (even college!) and so it’s up to us. Teaching our kids about building wealth is not only an important life lesson but presents us with great opportunities to spend more time with them.
How have you taught your kids about money?
Photo Credit: Low Jianwei
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.