Where to start if you want your kids to grow up financially savvy
If you want to raise financially savvy kids, consider leaving the lectures behind and starting with an allowance instead.
One of the most important things you can teach your child is the importance of saving, says Rose Palazzo, former head of financial planning at Morgan Stanley and now head of MoneyGuide at advisory platform Envestnet. For kids, the lessons that stick around the longest are the ones they learn through experience.
Palazzo recommends parents not only give their children an allowance, but permission to spend it on whatever they want. This helps them learn and practice the concept of setting goals.
“Help younger children understand the value of saving and how to balance what their near-term needs are versus things that might be longer term,” she tells CNBC Make It.
She suggests showing children how they can set savings goals for “that special toy or that event they want to go to” and work their way toward it by setting aside portions of their allowance.
“Putting the money away and then being able to purchase that toy, that’s something that they’re going through,” Palazzo says. “Actually putting it into practice can be really significant for children.”
Though she says there is “no right age” to start teaching kids about money, Palazzo recommends starting young when teaching about savings. As they get into their teens, you can begin to touch on more complicated topics, including teaching them “some of the concepts around investing and the power of compounding interest.”
Building a strong financial foundation at a young age can pay off.Even legendary investor Warren Buffett credits the early money lessons his parents taught him with setting him up for success.
Buffett described himself as “lucky” for having parents who taught him about finances when he was young at Berkshire Hathaway’s annual meeting in 2014. “We were learning it at the dinner table before we knew what we were learning,” he said of financial literacy.
Buffett said he received “letters every day from people that have committed some kind of financial lunacy or another,” but who didn’t realize that what they did was wrong because “their parents didn’t teach it to them.”
“Digging yourself out of the holes that financial illiteracy can cause, you can spend the rest of your [life] doing it,” he said.