Tips on how to raise financially responsible children for small business owners
In addition to the responsibilities of running a business, small business owners also have an even greater responsibility, which is their family. Of the many things that parents can teach their children, money management skills should be a priority as being responsible with money is something that will serve their children well throughout their lives. So when should parents start teaching their children about money? The answer is it is never too early! By establishing good habits early, it sets children up to be successful in this particularly important area of their lives. Things are always changing in life so there will always be an opportunity to learn more about money so teaching financial responsibility should be an ongoing discussion with children. I list tips below on how to raise financially responsible children.
Encourage work to earn money
Small business owners know plenty about entrepreneurship, so this is a concept that they can introduce to their children. First, small business owners should explain to their children what they do every day and what it takes to run a business. This should include telling children the various tasks that are completed during a normal workday. Also, children should be told that being a successful small business owner requires discipline, strong decision-making skills, and resilience.
Additionally, paying children a small amount to do chores around their home is another way to encourage work to earn money. Even with them only getting a small amount of money, children will start to learn the value of work and what it feels like to earn money. The overall goal here is for children to understand that money is earned through hard work, which will help them appreciate the effort needed to get the money they receive.
Teach to give first, save next, and spend last
Establish a family culture of giving
Children should learn the value and positive impact of giving to others and helping in their communities. If there is money available, then encourage children to give an amount to a charitable cause that they care about. They also can give to someone who they know (e.g., sibling, friend, cousin) just to be generous.
Volunteer work is another way to show the importance of giving. Together as a family, engaging in community service efforts (e.g., helping at a soup kitchen, working at a local shelter, and participating in a community clean-up) can help children become more empathetic and give them a better perspective on life.
Explain the importance of saving and investing
Opening a savings and/or investment account for a child is a way to teach them the basic concepts of how interest works, investment growth, and the value of having emergency savings. Children can learn about compound interest, which means that they not only earn interest on their principal balance, but they also earn interest on their interest. Additionally, they can understand how investments can grow in value (stock appreciation) over time. Finally, children can learn about the benefits of having adequate emergency savings in place, which could help them during a challenging time in their life (e.g., potential job loss) and/or cover an unexpected financial obligation (e.g., car repair, home appliance breakdown, home utility breakdown).
Encourage smart spending
Children should learn that it is okay to enjoy spending money after working hard and being financially responsible (i.e., giving and saving should be the first two priorities before spending). Regarding spending, children should also learn to avoid the pitfalls of impulse buying, which is buying without a plan or intention. Explaining to them that impulse buying is a money behavior that can have a negative impact on their financial lives if it is done consistently over the years. Children can learn there are ways to avoid impulse buying, which include focusing on their budget and always thinking about their personal financial goals (e.g., purchasing a home, comfortable retirement) that they will have when they become adults.
Set an example of being financially responsible
We have all heard the term “practice what you preach” and it applies in this situation. All the money management teaching will not matter if children do not also observe financially responsible practices at home. Showing children how to make prudent financial decisions (e.g., deciding on where to go on a family vacation based on the household budget, making the decision to only go out to eat a certain amount of times per month) and talking openly about money (e.g., sharing with them the balance and growth of their college savings account, discussing the current economic environment, talking about retirement savings) helps create more understanding for them about finances.
Additionally, encouraging children to read and/or listen to books and resources that focus on money management skills could help their learning be more enjoyable, which might help them engage in the knowledge more.