Teaching your children where money comes from is important for a few reasons. First, keep in mind that if you don’t teach them these skills, nobody will. Do you really want them to learn about money in the school of hard knocks? I didn’t think so.
Next, when you teach your children these skills, you’re learning too. When I discuss different concepts with my children, they often ask me questions that require research on my end. If nothing else, you’ll be forced to think about your money more deeply than you otherwise might.
And the last reason I want to encourage you to guide your children is that this is a wonderful way to spend quality time interacting and learning together. It will bring your family together in a new and powerful way.
Convinced? Here’s how to start:
The truth is there are opportunities all around you. One way is to get them involved with weekend jobs. But if your child is too young for that, consider any business your child shows an interest in. You can discuss a favorite store, restaurant or even your place of employment. For very young children, I’d go with something like this:
Let’s assume you decide to talk about your daughter favorite place – Disneyland. Your explanation would go something like this:
Disney started out in a small room like many small business ideas, but eventually, they grew into a huge company that owns theme parks, movie studios and more. In a typical theme park, there are three groups of people. The owners of Disneyland, those who work there and customers who pay to visit. The owners are the ones who dreamed of the idea, bought the land, figured out the layout of the park and how to attract customers. They are the ones who turned their big dream into reality through hard work and dedication.
The second group are those who work at Disneyland. They get money every time they show up for work. The people who work there get paid by the owners.
Finally, there are those who pay money to come and visit Disneyland. The people who pay money are the customers.
With the money that comes from operating the park, the owners have to pay the people who work there before they get any money for themselves. If, after they pay for all their expenses, there is money left over, they get to keep it. That is called profit. If they are able to earn more profits every year, the value of Disneyland will go up because other people will want to have some profits too. If the owners are unable to make profits, fewer people will want to be owners so the value of Disneyland will go down. This won’t have as much impact on the people who work there or the people who visit. The profit is mostly important to the people who own the company because they can benefit from the rising value of what they own.
This story illustrates how capitalism works and allows your children to understand that money doesn’t grow from trees. Once your children understand the concept of ownership and how different people make money, they’ll be ready for more advanced topics like investing and money management.
This is a guest post from Neal Frankle, Certified Financial Planner from Los Angeles. He also is the owner of Wealth Pilgrim, an insightful personal finance blog.
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