Hi.
in the post from last week I wrote some concrete action that he learns to develop his financial thinking from an early age on.
Today, I will try to sum up different ways of presenting him financial aspects of life, and how he can use them. I'm still searching for examples, but try to incorporate some teaching every time there is a chance for them. This journey is a long trip, but he needs to feel empowered in the end, to make the best choices, in different situations in life. We want to equip him with the knowledge and skills to make smart financial decisions, even at this young age. He will turn 5 this year by the way.
The biggest thing, that I fight with myself and my wife, is to stop giving him free stuff when he asks for it. He needs to value it, to really wish for it and to see that it is not free and most of the time comes with sacrifices.
This will lead to the first points of lessons, I like to give him, saving and budgeting.
He has his own piggy bag, where once in a while, he can add coins inside. We explain to him that it's his special bank where he can keep their money, and it is safe. We will teach him more on the safety topic, when he is older, as this would be a must. Furthermore, we encourage them to put all the coins he has or all the gifts into the piggy bank. It's like their own little treasure chest, and yes, he loves treasures.
We say to him, when he wants something from the shop, that we don't have it in our budget, but he can use freely the money he is saving. The first two times he paid with it, but he has seen that it is almost gone, so he understood the principle.
We can't give him very tough tasks to earn money, but we encourage him to understand that money is made, either by work or investment. He gets to keep the coin from the shopping cart, especially if we take the small one for him. He is excited then to help with the groceries and pushing the shopping cart back to the place, to get the coin. We try to put 2 Euro in, as these shopping carts function with 2 Euro, 1 Euro and 50 cents coins. Love that he puts the coin in his small pocket and holds it strong till home, where he uses the piggy bag.
Another step is teaching, ownership and net worth.
He has his toys, and they are his own, and is freely to do what he wants with them. If he breaks one, it stays broken and we will not replace it. He learns ownership by doing this. Also, he knows that a small car, costs around 2 Euros from the store we buy it.
By adding all the cars, he knows roughly his net worth. Ok, he can count till 20, and he is now many 20 Euros worth. At least he understands he has a net worth over 20 euros. He counts and does piles of 10 coins of 2 Euros from his piggy bag and shows me that he has money.
Sometimes we take a 2 Euro coin from him, as spare change is seldom. I wonder if he finds coins around the house and just brings them to his piggy bank. If we take a coin, he always gets to back. This action is teaching him lending and interest rate. Also on the other side, if he buys a car in advance, he will need to pay two coins, instead of 1. This is teaching him the concept of credit, and interest rate, but on the lending side, not lenders side.
Delayed gratification comes naturally out of the concept. I don't explain him at a very deep level the notions and concepts, but he learns them by example. For now, he skipped two months of buying a care, as he has seen that his piggy bag is getting bigger. I think he is saving for a bigger car for now, or something else.
He has noticed that his stash is bigger, as by the time we borrow money from him, he earns compound interest on his investment. Sometimes, I wished my parents would have taught me this, at a very young age, but they could not, as it was communism back then, where I was born, and finance was the enemy of the state.
With simple lessons like the ones above, or the ones described in the previous mentioned post, that can be read in here, where leveraging was the topic. We think, he will be set for life with some abilities that others will pay hard money for it, or learn with painful experiences.
As parents, we don't relay only on the teachings. We need to action also some, so that he has good starting capital.
Since he was born, we opened a stock exchange account, where we deposit each month 100 Euro, and where shares are bought. Well, the shares are giving also a good return, as if we would put only 100 Euro, without interest and compounding, after 18 years, we would have only 21600 Euros, which with inflation, would be nothing.
We are aware that time is your ally when it comes to saving and investing. The earlier we start, the more opportunity our, or in this case, his money has to grow. We committed to a consistent saving and investing plan, even if it's a small amount each month. Consistency is the key in this case. We automated the transfer and a small portion of the purchase goes into ETFs, as they have some different taxing aspect.
Also, we hand-picked some other stocks, like we did with NVidia 4 years ago, and we are glad that we did. We continue to buy stocks that are probably to stay when he turns 18, like food and beverage stocks.
Of course, we need to update our strategy once in a while, but this is part of the game.