You can do three things with money – save it, spend it or give it away. If you impart these three important money values to your children from an early age, you will be giving them the best gift you could possibly give. They will grow up with a clear understanding of the value of money and will become financially disciplined adults.

It is important for parents to emphasize to their children from an early age the value of money. Habits instilled when children are very young will last a lifetime. If you teach them the three things they can do with money – save it, spend it, or give it away, they will have the pleasure of seeing their savings grow and the joy of helping others, while always knowing exactly what they are spending on.

The goal is to train young people from the beginning that money is not just for spending, but some portion of it is given back and some portion is saved. You can do this by using a container marked with the three values and dividing their allowance and any major gifts they receive into three parts representing the three values. You can explain that this is how adults handle money, but it has to be true in your family for these values to stick. You are the best example for your children and you cannot teach them values you don’t practice.

To make it easy for your children to understand these values, use a simple formula such as for every pocket money he receives, 60 per cent will go to spending on things that he wants but you must ensure these are not things that you don’t approve, such as going out to hang in the malls; 20 per cent goes to savings and 20 per cent to giving either to charity or church offering. You can use an incentive of raising his pocket money allowance if he performs this task of ensuring he is accounting for his money. You could also reduce it if he is not keenly practicing this money habit.

To show your child that it helps to plan for their money using the three values, you can motivate him to save more by providing a “matching fund” for every shilling he saves. For example, if you give him pocket money of Ksh 100 and he puts Ksh 20 of this into his savings account, you can put in another Ksh 20 to boost his savings. This will help him watch his money grow and he will grow up knowing the value of saving to increase personal wealth.

You should also encourage a sense of possibility and promote individual strength in your child from as early as possible so he can grow up knowing how to make money and use it responsibly. Many successful individuals credit their parents for encouraging them to go after their dreams and take risks. As a parent, you have the opportunity to provide the same type of encouragement to your children. Be the parent who says yes to their dreams and encourages them to explore various interests. Do not shut your children down by shaming their dreams and telling them that they are selfish, stupid, lazy, or will never amount to anything. Parental support is critical for all areas of childhood development.

If you want to raise financially smart children you must help them understand from the time they can understand, say early teenage years, that it costs money to live the lifestyle they desire. Give them an idea of what different careers pay at entry level. This great exercise will help children overcome the fantasy images they get from media, especially TV, and give them a real idea of what to expect once they are on their own. This will go a long way to guiding them into career choices and also understanding that money does not grow on trees – you have to work hard and have a plan to get it.

You should also help your child understand educational costs, the cost of living, the wages, and the taxes, as this will help them get excited about real possibilities for the future and make choices that will support the achievement of their goals. For example, understanding the cost of education makes them realize they cannot waste it, even though their parents are paying for it.

The same holds true for a child who wants to pursue an expensive hobby or join his friends on holiday or an outing. Make sure you explain what the costs are and how much this pursuit will impact on the family budget. It does not help children if you struggle to provide them with expensive holidays or toys when you cannot afford to pay their school fees. You must teach them not to live like the Joneses’ but to live within their means and be individuals, not people who always follow the crowds.

Emphasize the importance of education

One of the biggest gifts you can give your children is the means – or, if not the means, the motivation to attain a good education. Even if you cannot afford to fully finance your child’s education in the best private schools, making it clear to your children that you expect them to at least get a university education is vital. You must be open with your children from an early age about your ability to pay school fees in expensive schools so they don’t expect to follow their friends. If you cannot afford private education it is important to encourage your children to keep up their grades in order to be admitted in the highly competitive good public schools where there are many opportunities. You must also encourage them to excel in sports or other activities that can lead to scholarship opportunities in leading schools and universities.

Good education confers many advantages – a better job, higher pay, higher lifetime earnings and more job opportunities. Although we have many university graduates out of work because of the current economic situation and high population growth, not pushing your child to graduate from college may mean condemning them to a lifetime of low wage and dead-end service jobs. Education, without a doubt, gives you more opportunities.

Connect your child with reality

If you are raising your children in an affluent environment, it is critical to instill in them a sense of financial reality. Children from wealthy families should learn about financial limits and self-discipline. They need to master basic money skills and not be brought up to assume that their parents have endless sources of money, so they can always get what they want. If you raise your children to have no idea of what their lifestyle costs, how the family earns it money, or the value of your contributions to the community, then you cannot expect that child to be a responsible inheritor of your wealth and to handle the fortune that you would like to leave to them. When a child in a wealthy family hears, “We can’t afford it,” he knows that is not true. It is the job of wealthy parents to say, “We are not going to spend our money in this way” and to teach good financial values to their children. It is important to think twice about whether your child needs what he is asking for even if you can afford it.

Buying your child every possible thing he could ever desire and never saying no will create a very unhappy adult who has no sense of limits and will be extremely angry to be kicked out of the fantasy world you raised him in, when the time comes for him to take care of himself. Children from wealthy families who are not raised up with an understanding of money values may refuse to attend school, party constantly with friends, and refuse to grow up. They will become unhappy, insecure adults with many problems such as alcohol and drug addictions.

Remember their behavior is being funded by you if you continue financial support when children do not complete school nor seek viable employment and continue to depend on you. It is sad to see children who had it all burn out with drug addiction, crazy behaviour or suicide. It is the job of wealthy parents to make sure that their children do not become overwhelmed by the family circumstances.

Even if a child will not work due to income from an inheritance, he still needs to be involved in the management of the investments that create that income and to understand how to work with the financial professionals who are managing the fortunes. It is up to you to teach responsibility and balance and to show your children that money can’t buy them happiness. It can’t be said enough that the most important things in life, including love, are priceless. This is what every parent should teach their child.

No matter how large the family fortune is, the money will not be there to support future generations if the current generation spends it all. It is quite possible to blow all the wealth on bad investments and a lavish lifestyle. Unless children learn from their parents how to live responsibly as wealthy individuals, their children and grandchildren may well become working class again, or worse still, beggars.

Ten-point action plan to guide children to family prosperity

Learn to distinguish between wants and needs, and to delay gratification.
Understand the family history of creating wealth and practice the skills and values that made the family fortune.
Learn to live within a budget and to manage spending, savings and giving.
Understand how to read financial statements and interact with financial professionals.
Get a good education.
Develop a meaningful career or find activities that bring a sense of purpose to life.
Learn how to interact with people from all walks of life.
Learn to handle requests for money from others in a gracious manner.
Develop a meaningful connection to the world at large.
Learn to accept and manage life as a wealthy individual.

Published on May 2013