If you didn’t do a lemonade stand when you were a kid you probably missed out on a valuable lesson. Aside from striking it rich in the “multi-million dollar lemonade industry” and earning a few charitable bucks from passers-by who consciously or subconsciously encouraged your entrepreneurial spirit, you may have missed that earning a buck is hard.
As a parent, watching your child take the initiative to dive head-first into this age-old endeavor is a proud moment, but watching them learn the value of hard work to earn a living is immeasurable.
But what if we could use this lesson as way to teach them that it isn’t only about the money you can make, but about the money you could save so you don’t have to work the “lemonade stand” your entire life.
While saving or investing money won’t sound like the most exciting thing to your children, it’s critical for their success later in life that they learn to have a healthy relationship with both money and work. A great lesson is that life is about more than working, and while it is an absolutely important and necessary part of life, work doesn’t have to be something that you struggle with forever. Smart earning is getting money to work for you so you can enjoy more of everything else.
Here are 5 Strategies that can put your child on the path to saving and investing and make their entrepreneurial spirit pay off:
- Spend Money
Let your child buy something with their new earnings. Believe it or not this creates an immediate healthy approach to money. As long as you implement a savings strategy, purchasing that “want” with the fruits of their labor can demonstrate that one day it can become their ticket to a life of leisure if done properly.
- Create A Savings Plan With A Purpose
Help your child open a savings plan for something big like a computer or car. This process can provide them with a strong sense of achievement and pride as they watch their accomplishment accrue over time. A savings plan will also eliminate easy access to their cash. By keeping it in the bank rather than their sock drawer, your child will be less likely to blow their money on frivolous purchases when having to take a special trip to the bank to access their funds. This also begins to build a healthy relationship with their bank which could be important in the future.
- Take On A Business Owner Mentality
One of the best ways to set your child up with healthy saving habits is to get them to think of themselves as an employee of their own business. This strategy is called “paying yourself first”. Whenever your child receives any money, like proceeds from lemonade sales for example, they must pick a certain amount to set aside. Most adults choose a percentage around 10%. For young children, with little to no expenses, that percentage should be much higher. This helps them to always save without condemning them to have no fun at all with their hard-earned pocket money. Always save first and then go about your spending. This is a sound rule to have your child live by.
- Match Your Child’s Savings
Offering to match your child’s savings can be a great way to encourage good money saving habits. You are in a sense incentivizing them to save. Becoming a good saver requires you put money away consistently for an extended amount of time. Another strategy to motivate saving is to actually offer to split costs towards their dream purchase if they can save more than half the money for it over a certain amount of time. The key is to instill the idea that delaying gratification usually leads to larger, and more fulfilling rewards than running out and buying as much as you can today.
- Have The Investing Conversation
Once you’ve set your child on the path to saving and implemented strategies that keep them engaged in their own money and interested in making more, it may be time to talk about investing to make your money work for you. Explain to your children that investing is a term that covers a broad range of ways in which people can put their saved money to work for them. Investing is just like saving, only you use your saved money to buy something you think will be worth more money tomorrow. There are many ways to explain this to your child, but the most common way is by evaluating company stocks and working together to follow and chart companies that may be interesting to your child’s sensibilities like toy companies, sports, or technology. Break it down by identifying share costs, how much money your child may have to invest, and the power of compound interest. By demonstrating how much your child could have made if they invested at a certain time with what they have saved today, you will start them on the road to healthy strategies to manage their money. Further, a road trip with your child to speak to a financial advisor is a great strategy to further educate your child on investing and most would be happy to assist.
So, the next time your child shows the entrepreneurial spirit, start with a lemonade stand and use that as motivation to put them on the path to saving and making their money work for them. It could lead to a healthy life of financial well-being for generations to come.
Engage with the entire King Financial Network team on www.kingfn.com to see what other expert advice we can provide towards your financial well-being.
Tony Kelly is the Director of Financial Planning and Partner at King Financial Network. Tony focuses on investment planning and economic research. He is responsible for the due diligence of investment companies and portfolios as well as the preparations of KFN's valued client reviews and performance reporting.
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