Make a Millionaire out of your child

As a child, I always wondered what I could do that would make me a millionaire. I really wanted to be rich and I mean very rich. This is one of the reasons why I care about the financial well being of kids so much. I am sure many kids want to get it right as early as possible. One thing I am certain of is that if they are able to get it right early enough they will be able to achieve whatever they want to achieve as soon as possible. How then can you work towards making your child become rich? Here are some tips:

• Don’t allow your child to take on degree after degree all because of money. More schooling is not a guarantee for a higher salary; neither is it a factor of how expensive the school is. What is actually required is more alignment with purpose, passion and a refinement of inbuilt skills and talents. If this alone is paid attention to, your child is guaranteed to make money, lots of it for that matter. However, don’t get me wrong, if your child is passionate about books and reading more and more, by all means let him or her go for it, but be sure it is not being done for money.

• Encourage your child to start working early in life. If you own a business, you can put them on your payroll but make sure they are doing real work. It’s easier to become an entrepreneur when one works at it from early in life. A 15 year old boy will find it easier to try his hands on a business than a 40 year old man with a wife, 3 kids and aged parents to do the same. If he fails he will move on and not sulk and be scared of trying again and again.

• Inasmuch as your kids get to hear what you say, you need to show them that taking loans for liabilities is not worth it. Rather let them understand that the rich will always leverage other people’s money to achieve their own dreams. I have noticed that very many people who are not rich are scared of taking loans even when it is for a good course. This is limiting. Let them learn the ability to get help when it is for the greater good.

• Let them start learning about money very early in life. Let them learn about budgets and limits. Instead of giving kids small allowances for movies and snacks, give them larger ones and have them pay for things like clothes and transportation. This will teach them about tradeoffs and buyer’s remorse. A financially sheltered child will only grow to run back every time he or she is out of money. Raise a financially smart child who will know that he or she ought not to spend it all but to also give, save and invest.

• Teach them to begin with the end in mind by investing. This you can start by encouraging them to invest their savings in paper investments such as stock, bonds, funds, deposits, etc. You can also give them investments instead of satisfying some of their cravings that you know will not mean so much after a while.

Piggy bank or Bank account, which is better?

How do your kids save money? Do you use the piggy bank or a bank account?

Physical currency is a wonderful and very real way to teach younger kids about money. The fact that they can see it makes the lessons more at home. You can begin to use multiple “piggy banks” to physically teach them that saving is for different goals. See the lessons on money management for more tips on this.

Physical currency, however, does not teach anything about earning interest on money. As your child grows older the need to teach returns on investments becomes very important. Money in a savings account, fixed deposit or any other investment will yield some returns known as interest or dividend. A way out is to give out weekly allowances in physical currency. Then when your child is old enough, from 8 years, you can take the “investment” portion of their savings and move it into other things, starting with a savings account. This will give them the opportunity to learn how to make their money work for them. This is what investors do. Also use this opportunity to explain to them the concept of working for money and also making their money to work for them.

Increase your financial IQ

Real estate, stocks, mutual funds, businesses, or money is not what makes a person rich. It is information, knowledge, wisdom, and know-how that makes one wealthy; that is what is referred to as financial intelligence. There are five things you need to work on to increase your financial IQ. They are as follows:

1. Make more money

You need to increase what you earn on a regular basis. To do this work is required. You can never make more money without working. Interestingly it is the process that helps you become rich and not the money. The more you make money the more money you can make. Each person goes through a different process so you can not compare yourself to another person. Your goals, dreams and ambitions are different. Just find your niche and determine how you want to get to your goals. Making more money has a lot to do with you being able to control your emotions. You need to learn to delay gratification. Never give up. It may seem tough but if you are positive you can solve problems. The more problems you solve the more money you make. Identify the problems preventing you from wealth, tackle them head-on, and the money will follow.

2. Protect your money

Once you’ve begun to make money, you need to keep it away it from “financial predators”. You can do this by ensuring the following:

– pay as little tax as possible legally

– protect your bank accounts against unnecessary bank fees

– buy only what you need and not what you want

– your spouse is as intelligent as you financially so you are on the same page when it comes to finances

– plan for your death so that your family is not stranded when you go

– protect yourself from legal difficulties

3. Budget your money

The ability to live well and still invest no matter your earnings can only happen with a high financial IQ. Financial IQ is a function of how much you have left and not how much you make. Decide on the budget you want to follow. Pay yourself first then spend what is left wisely. Spend more on information and education. Never live within your means rather increase your means. Remember that the way you treat time and money determines what your future will be like.

4. Leverage your money

How well is your surplus generating more money? Learn how to leverage to make more money. That is what the rich do. When you use leverage you only need to ensure that you have some form of control on what you are investing on. Do not gamble or speculate with money.

5. Improve the financial information you have

Whenever you want to make any investment decision always ensure you conduct extensive research. In doing that ensure you do the following:

– Separate fact from opinion. People are always giving their opinion of what is good or what makes sense. It is foolish to follow this. Ensure you work only with facts.

– Verify all information. Never trust just one source of information. Seek to corroborate from other parties as well.

– Know the rules. If you don’t understand how an investment works, don’t partake in it.

– Understand trends. Trends are historical facts. Always ensure you use trends to make informed decisions as trends are valuable sources of financial information.However, it’s important to note that trends do not project to future facts. It only gives you an opinion about possible futures.

When you do these things you have all the confidence required for you to invest.

Teach your kids about investment

Savings for kids can start in a piggy bank after which you can then open a bank account for them. It’s recommended that by the time your child is eight years old he or she already has a savings account that can be monitored by himself or herself. In keeping a savings account you should search for one that will offer your child the best deal as interest rates vary from bank to bank. Also note that since interest rates are very modest these days, it is important that you work with your child to consider several alternative investments that pay interest or dividends as well. These may not be as safe or liquid, but they’ll give your child more interest over the long run. Other interest-bearing investments you can consider for your child for a start are fixed deposits, treasury bills, bonds and stocks. These investments are more sophisticated and may require a relatively large initial investment. The investment option you decide on will determine the balance your child needs to work towards in order to move funds from the savings account.

Another thing you need to teach your child with respect to investing is diversification. When your child was saving coins and notes in a jar, it might have been a good idea to keep everything in one place. That way your child would have seen how the savings grew by looking at how high the coins/notes rose in the jar. As your child’s savings grow from a few notes into thousands, keeping it in one place is no longer the best idea. At this point, your child needs to diversify her investments. Diversification in this regard means putting money into different investments. In effect, it’s hoped that by spreading money around, your child won’t suffer too great a loss if one or two investments do poorly. This helps your child to still be in good shape financially. You and your child must work together on how to allocate assets among investment and at what point to change this allocation. We can treat this in more details at some other time.