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According to a study by Brown University habit study by Dr. Pressman, we pick up most of our habits from our parents. If parents are bad at managing money, their kids will be bad at managing money. When you’re bad at managing money it has a tendency to disappear. That means no savings, no retirement assets, runaway debt and a life filled with financial worries.
No parent wants their kids to grow up to struggle financially as adults. Yet, since most people do struggle financially, its clear parents have been and are failing to be financial success mentors to their kids.
Well, let’s put an end to this generational parenting malpractice.
Below are a few smart money habits to teach your kids. These were extracted from two of my books – Rich Kids and Effort-Less Wealth:
- Teach Savings – Saving is a habit that must be forged right out of the gate, with your child’s first Adult job. Advise your adult child to start small, say 5% of net income. As their income rises, advise them to increase their savings rate to 10%. The ultimate goal should be saving 20% of net income by the time they are age 30.
- Teach Prudent Investing – Parents can help their young adult children by directing them to sound financial advisors who will help them safely invest their savings. Personally, I’m fond of CFP’s, since they are experts in developing financial plans. They also have to pass a rigorous exam and abide by certain, not so easy to follow rules, in order to keep their license.
- Teach Frugality – Don’t mistake being frugal with being cheap. They are two very different things. Being frugal requires three things:
- Awareness – Being aware of how you spend your money.
- Quality – Spending your money on quality products and services and
- Bargain Shopping – Spending the least amount possible, by shopping around for the lowest price.
- Teach Delayed Gratification – As your young adult child’s income rises make sure they do not fall into the very common trap called Lifestyle Creep. Lifestyle Creep is by definition: increasing your standard of living in order to match your increased income. It’s a common Poor Habit among many who suddenly find themselves making more money. The Rich Habit is to forgo the desire to spend your money today and, instead, sock it away into savings and investments that grow in value and provide financial resources that can be used in the future to maintain your standard of living. That Rich Habit is called Delayed Gratification – putting off something you want today for something you want tomorrow – financial independence.
Tom Corley is an accountant, financial planner and author of “Rich Kids: How to Raise Our Children to Be Happy and Successful in Life”, “Effort-Less Wealth”, “Change Your Habits Change Your Life”, “Rich Habits Poor Habits” and “Rich Habits: The Daily Success Habits of Wealthy Individuals.”
