Teach Your Children Well
This article was written by Nina Swartz (Needleman) for Spirit Seeker
We’ve all heard the adage “it’s better to teach a hungry man to fish” (for a lifetime) than to just feed him for one meal. But how many of us have taken the time to teach our children or grandchildren about personal finance? Personal finance is not taught in elementary school, usually not in middle school or junior high, and at best is only an elective in high school or college. If not taught in school, how do kids learn? By observing parents, other adults, and peers. In an ideal world, initial personal finance lessons would include: 1. What you can do with money, i.e. how money works 2. Definition of a budget and how to manage your cash flow. There are three things we can do with our money. First, we can spend it, something most of us are pretty good at doing. You can spend cash, you can write checks, or you can use a credit card. Second, we can loan our money. What I mean is we can buy bonds. A bond is a loan to a corporation. For example, right now there’s a Anheuser Busch bond you can buy. You invest in this bond and the Anheuser Busch company pays you 4.175% each year for the use of your money and in 1/15/2013, pays you back what you lent them or invested.
There are several types of bonds - cor-porate bonds, which are loans to companies; government bonds which are loans to the US government; and municipal bonds, which are loans to city, state or local governments.
We can also own assets, i.e. buy assets and become owners of the property. You can buy a house, a boat or shares of stock. Shares of stock represent partial ownership in a public company. Companies sell ownership in themselves to raise money to grow. In exchange for your money, you get a portion of shares of ownership in the company, sometimes a dividend or portion of their earnings and usually a voice or vote in how they run the company.
While it is easy to be carried away with emotions or desires about something you want to buy, it is preferable to figure out in advance how you can afford to make the purchase. Your best tool for this is a budget. A budget is best defined as a written guideline for the use of your paycheck or incoming cashflow. This guide will show you money available, regular fixed expenses, and what is left for new purchases.
A good guideline for children and young adults is to save 10% of everything you earn. Pay yourself first! Make your first “bill” a payment to your savings or investing account. An easy way to do this is to set up an automatic withdrawal from your checking account.
The deterioration of growth and returns caused by inflation is one of several reasons many people select growth or equity investments versus savings and money market accounts. In his book Rich Dad, Poor Dad, Robert Kiyosaki advocates making every dollar that goes into your asset column (i.e. savings or investing account) into an employee. Let your money work harder for you so that you can reach more of your dreams and goals. Whether a young adult or a seasoned worker, more important than how much you make is how much money you keep and grow. Make saving and investing a monthly “bill” and put your money to work so it earns something for you. Pay yourself first.
