Raising Financially Responsible Adults:
5 Money Lessons to Teach Your Children

See also: Teaching Children Important Values

Parents are the first and most influential teachers that any child has.

After all, the foundational lessons parents teach form the basis for life skills those children will use to navigate the world as adults. This includes everything from table manners to attitudes about money.

That latter point is important, too, because schools and other institutions of formal education don’t spend much time on financial literacy. So, how do you as a parent ensure that your children will grow up to be financially responsible? You have to teach them yourself.

Here are five lessons that you can teach your kids that will guide them toward financial security.

1. Make Your Money Work for You

One of the big lessons from Robert T. Kiyosaki’s classic book Rich Dad Poor Dad involves a wealthy person’s understanding of the relationship between work and money. Poor Dad works for money, but Rich Dad makes money work for him.

A common misconception that most children learn is that to be well off they must get a well-paying job and commit to it. If they are dedicated and hard-working, they will be given the opportunity to climb the corporate ladder and increase their incomes incrementally.

And that’s a fine model of building wealth, but only up to a point because you can only trade so many of your working hours for money. At a certain point, wealth is a matter of taking what money you do have and making sure it constantly earns you more money through smart investments.

This is a hard lesson for adults to learn, let alone pass on to their children. But understanding this mindset opens up so many opportunities. For example, when income from work is no longer your sole, or even primary, source of revenue, you’re free to pursue work that you want to do on your own terms.

And once your children can pass on this understanding to their children, you will have built a foundation for growing generational wealth.

2. Spend Less Than You Earn

A cornerstone of financial security is teaching yourself how to spend less than you earn. Children must learn early on that spending as soon as you get it will lead you into financial disaster in the future. Teach them instead to save.

Saving money is not just about squireling money away in a jar or burying it outside in the yard. Teach your kids that when they are saving, they should imagine medium and long-term goals for their money. Medium-term goals they can save for in a jar or a piggy bank; long-term savings can be put in a savings account.

Getting into the habit of not spending immediately is a hard lesson for most children to learn. As humans, we’re not so good with deferred gratification. But as parents, you can make the habit a fun one to adopt, even by simply color-coding the jars in which they save their money, or even matching their savings dollar-for-dollar.

Once children get the habit of putting aside a portion of their allowance early on, it becomes a great habit that they carry with them for life.

3. Maximize Your Assets and Limit Your Liabilities

This is another important lesson from Rich Dad Poor Dad. Teach your children that assets are anything that puts money in your pocket, whether those are businesses they own, properties they rent, or stocks they trade.

Liabilities, on the other hand, take money out of your pocket. Your children need to know the difference and how it applies to them. Liabilities include things like rent, weekly grocery bills, travel expenses, holidays and mortgages. Liabilities are unavoidable; however, if you manage your assets correctly then you won't have to worry about them.

Developing a portfolio of assets is like planting trees. You invest in them when they are young and nurture them until they become large enough to be self-sustaining and bear fruit. People who are able to retire early do so because their assets are large enough that the income their assets bring in sustains them and grows automatically, following the principle set out in Lesson No. 1.

But it’s easy to take on liabilities, especially when those things are shiny objects like new TVs or new cars. Even your house is a liability if you only keep pouring money into it. (The flip-side is any property you own can be rented out, or improved upon and sold for more than what you put into it, thereby making it an asset.)

Teach your children these fundamental principles for collecting assets. The earlier children learn how to invest their money in assets while limiting their liabilities, the more time their assets have to reap the rewards.

4. Financial Literacy

"A fool and his money are easily parted."

It’s not hard to find stories of people who come into millions of dollars and then within a year are broke again. Teaching your children financial literacy will ensure that one day their money will not make fools of them.

The best place to start is by teaching them to spend less than they earn, and by teaching them how money itself works. By teaching your children about financial literacy, you will introduce them to the relationships between saving, earning and spending. With such lesson, they will come to learn the true value of money and how to control it — rather than the other way around.

5. The Basics of Family Finances

Don’t make money a taboo in your home. Show your kids how you handle your own finances once they’re old enough to understand things like monthly bills, writes Trent Hamm, founder of The Simple Dollar.

The best way to start is to introduce them to bills that are relevant to them, like the Internet bill or the cell phone bill,” he writes at U.S News & World Report. “Show them the bill and talk about what it means and how that amount has to be paid each and every month in order to have that service.

From there, you can introduce your children to how you budget your family’s finance and allocate the money coming in. Many of us learned that these are inappropriate discussions for parents to have with their children, but keeping family budgets a taboo shuts off an important avenue for skill-building that children will carry with them throughout their lives.

About the Author

Casey Meehan is a writer, musician and the founder of Chicago content marketing company Epic Presence.