Teaching personal finance to kids from a young age is crucial for their future financial well-being. Mark Berg, a financial planner, shares valuable tips on how parents can guide their children towards financial success.

Financial Success Starts with Early Lessons

Start with the Basics

Parents can begin introducing personal finance concepts to their children as early as six or seven. By explaining how money works and giving them an allowance for chores, kids learn the value of work and delayed gratification. Limiting spending money also helps them understand opportunity cost. Using physical currency makes it easier for kids to grasp the concept of money. Saying no is also important as it teaches them that not everything is always available.

For example, when a child wants to buy a special toy, they have to save up their allowance. This shows them that they need to make choices and prioritize their spending. It's a valuable lesson that will stay with them throughout their lives.

Another aspect is teaching them about the true cost of things. Whether it's buying ice cream or a toy, they learn to make informed decisions based on their limited resources.

Build Good Money Habits

Once kids receive their first paycheck, parents can explain how taxes work and help them budget. Opening a checking account early and getting a credit card as soon as possible helps establish a credit history. It also gives them access to funds for big purchases like a first home.

It's important for kids to pay off their credit cards as they use them to avoid interest and late fees. This instills good financial habits from a young age.

By teaching them how to manage their money and make responsible financial decisions, they are better prepared for adulthood.

No Coddling

Parents should aim to make their children self-reliant as soon as possible. Stopping the payment for things like cell plans and car insurance forces them to take responsibility.

For instance, a client's children moved back home after college and were charged rent. This taught them the importance of independence and the consequences of relying on their parents.

Being upfront about college funds and wedding budgets helps guide their decisions. Loaning money for a house and ensuring repayment also teaches them the value of financial responsibility.

Do No Harm

Parents should never put their children in a tough financial position. For example, buying a home for a child who can't afford the maintenance and taxes can lead to problems.

It's important to make sure that any financial help given doesn't cause more harm in the long run.

By being careful with their financial decisions, parents can ensure their children's financial stability.

Pass Wealth Down Early and Carefully

Parents can start by giving small amounts to their children over time instead of a large sum after they die. Matching their summer job earnings and putting the money in a savings account is a great way to start.

By giving money each year and earmarking it for education or retirement, parents avoid lifestyle bloat and encourage their children to work.

A larger one-off amount can be used as a test to observe their decision-making skills and guide them towards making good financial choices.