Managing one’s finances is one of the most important skills any adult needs. It can be the difference between constantly struggling to make ends meet and long-term prosperity, despite how much income is earned. Nonetheless, financial wellness isn’t the biggest priority for most educators. Consequently, many children become grownups without having learnt the fundamentals. They then end up repeating financial mistakes and perpetuating cycles of poverty. What lessons do you need to teach your children to ensure their fiscal success? We explore below.
1) Filing tax returns
Every citizen pays tax. The earlier your children understand how taxes are paid and declared, the better. Not only will they avoid issues with KRA for nonpayment or improper filing, they can also benefit from tax breaks. On top of this, being knowledgeable ensures they are able to navigate complex tax systems successfully. Explain the various taxes that are charged, for example showing them VAT on receipts or PAYE on your pay slip. You can also help them file returns once they get their first job
2) The importance of delayed gratification
Unless you are part of the top 10% super wealthy, money is a scarce resource. Your children need to learn this early on. There will be times when they cannot buy everything they want immediately. Therefore, if they want an item that they cannot afford at the moment, they will have to raise the amount and accumulate it until it is enough. By teaching them about delayed gratification, they gain two crucial skills: earning from multiple income streams and saving.
3) Prioritizing expenditure
In addition to learning to find new income streams and how to save, children also need to be taught how to prioritize their expenditure, or in other words, budgeting. Being able to differentiate between essential and non-essential spending is necessary to make the most efficient use of the money that is available. Teach them to budget by sitting with them weekly and asking them to list their expenses, organizing them in order of importance and then comparing it to the amount of money they already have. If they need to top up, help them plan how they will fill the deficit.
4. The power of compound interest
Few things rival the earning potential that comes from compound interest. Modest amounts can grow considerably over the long term simply from compounding. For this reason, the earlier you guide your kids on how to invest, the more they will gain. Show them practically by opening an investment for them, which they can contribute to regularly and see growing over time. Go over their statements with them so that they can understand how their initial capital has yielded up to that point.
Teaching your children to manage their finances is not easy, but it will have immense payoff in the future. Not only will they become financially independent sooner, they will also learn how to create their own wealth and spend it wisely. As a parent, you want the best for your children. Ensure they have every chance to succeed financially by teaching them about taxes, saving, earning from multiple income streams, budgeting and investing.