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Time-on-earth allocation, and other money habits to teach your kids

Antje Schiffler  |  11 Jul 2022Text size  Decrease  Increase  |  
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Children remember simple, repetitive instructions. Brush those teeth twice a day, don’t cross the road on a red light, eat your veggies - there's a reason these statements work, but they only work if you do it too.

Similarly, if you want your children to develop good money habits, they need to see you making smart choices. How you handle your finances around your kids might be even more important than what you teach them about money. 

In other words: practice what you preach. If you want your children to develop reasonable spending, saving and budgeting habits, they need to see you make smart choices. But be aware: this will take time. Here's five tips to help you do just that. 

1. Spend earnings wisely, or, what to do with grandma’s birthday gift

Trying to talk your children out of squandering their birthday money can be nerve-racking. Be assured, you are not alone. "Are you sure you want to spend the money on this?" is probably a question all parents will utter at some point.

Remind your kids that just because they can afford to buy the toy, tennis racket or Tesla does not mean they should buy it.

Show your children how reining in those small impulses can translate into greater rewards down the road. And make a point of modeling impulse control and weighing tradeoffs. Over time, they will watch their money grow – and experience delayed gratification.

2. You need an income, or the value of an allowance

Allowances teach children the value of money. Kids learn by experience at a very young age about financial achievements and mishaps. Giving children a budget to stick to can encourage smart decision-making. It forces kids to make their own cost-benefit decisions and prioritise what matters.  

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This also means that you need to teach your children to live within their means. If they blow their monthly allowance in week one, you need to not top it up every time they need more. It will help them experience delayed gratification.

3. Life is long (Have a plan)

At Morningstar, we are all about investing for the long term. That may be a hard sell to your teenager, who thinks summer is an eternity. But when they realise planning ahead will help make money grow, they’ll listen.

Once they are old enough, suggest they model their own portfolios. They will experience that it’s worthwhile learning about investing and finance, and about the benefits of making those strategies work for them.

For those old enough to begin investing, remind them to set realistic expectations and find a strategy that works during market volatility. Not checking your account balance everyday is a good start, says Morningstar’s Carole Hodorowicz.

"If you're hands-off with your portfolio, you’re less likely to make changes that you could later regret, such as selling yourself out of stocks in the depths of a bear market", adds Christine Benz, Morningstar's director of personal finance.

And keep in mind: although the 152-year record of US market returns is littered with bear markets. In each case, the market eventually recovered and went on to new heights.

4. Compare yourself to yourself (ignore the rest)

Benz also recommends one thing in particular to children and teens. Not everyone comes from the same means. And even if peers get a fast start, that doesn't necessarily mean they will end up ahead. That means comparison with others should be avoided.

Admittedly, that is hard to do, and social media is of no help either. Snapchat, Instagram and TikTok are replete with influencers posting their lavish lifestyles – or dodgy investment advice, for that matter.

However, do compare yourself with yourself: measure your progress (or that of your child) and see the improvements you've made. And don't forget to celebrate the small wins!

5. Remember the less fortunate

Once children are old enough to make their own money, be sure you teach them about giving. They can pick a charity or organisation. This way, they will experience how giving not only affects the recipient, but also the giver.

Australian philosopher Peter Singer's charity The Life You Can Save curates a list of impactful charities.

Benz encourages older children to pay attention to what she refers to as "time-on-earth allocation." Find a balance with how you spend your time and money so that it brings you joy and does some good, she says.

is an editor for Morningstar in Frankfurt.

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