Warren Buffett: This is the first mistake parents make when teaching their kids about money!
If there is one person who knows and understands the importance of teaching children financial responsibility, it is Warren Buffett.
Before becoming CEO of Berkshire Hathaway, legendary investor Warren Buffett started a few small businesses — starting at the age of six when he bought six cans of Coca-Cola for 25 cents, sold each for a nickel, and sold magazines and chewing gum door to door.
"My dad was my biggest inspiration," Buffett said in an interview with CNBC in 2013. What I learned from him at a young age is to have the right financial habits early on. The savings was an important lesson he taught me.”
When asked what he thinks is the biggest and first mistake parents make when they start teaching their kids about money, this billionaire replied, “Sometimes, parents wait until their kids reach their teens to start talking to them about money management — when they can Start teaching them a lot of things about money while they're still in preschool.”
Financial education at an early age is an important factor
If you're wondering if preschool is really meant, then yes. In Buffett's view, researchers note that 80% of our brain development occurs by the age of 3 years.
One study conducted by the University of Cambridge found that children are already able to understand basic financial concepts between the ages of 3 and 4 years. By the age of seven, basic concepts regarding future financial behaviors are usually developed.
“Most parents already know how important it is to teach their children things about money and how to manage it properly,” Buffett admitted, but there is a vast difference between knowing and taking action.
According to a 2018 survey by T. Rowe Price, they discussed financial issues with their children before the age of five.
Thirty per cent of parents started teaching their children about money at age 15 or older, while 14 per cent said they had not done so at all.
Money Lessons Warren Buffett Taught His Kids
In 2011, Warren Buffett helped launch an animated children's series called Secret Millionaire's Club, which introduced itself as a mentor to a group of students.
There are 26 episodes on the show, each with a financial lesson, like how a credit card works or why it's important to keep track of where you put your money.
"I taught all of my [three] children the lessons that were taught in the 'Secret Millionaires Club,' which are simple lessons that can be learned in work and life," Buffett told CNBC.
Here are some of the lessons learned from that show, along with some Warren Buffett's tips on how to teach it to your kids:
How to be a flexible thinker
The goal of this lesson is to encourage your children not to give up just because something doesn't work the first time. The ability to think creatively and outside the box will be beneficial to them when they face some financial challenges in the future.
• Educational ideas:
Go to an art museum with your kids and discuss the different styles of each painting. Then invite them to draw something of their own. Ask them to brainstorm different tools — besides the paintbrush — that they can use (for example, sponges, cotton swabs, or fingers).
Turn old things into treasure by challenging your kids to come up with new uses for old things around the house (for example, bottle caps can double as square pieces, and an empty cereal box can be turned into a magazine holder). This will help teach them how to think critically, save money, and help conserve the environment at the same time.
How to start saving money
As Ben Franklin once said, “A penny saved is a penny earned.” To help your children learn how to manage their money, it is important for them to understand the difference between wants and needs.
• Educational ideas:
Give each of your children two wallets for money: one for saving and one for spending. Each time they receive cash (for example, as a gift or for an allowance), talk to them about how they would like to split the money between savings and spending.
Ask your kids to make a list or make a collage of magazine photos of five to 10 things they would like to buy. Next, go through each item with them and determine whether or not there is a need to purchase it (for example, a new toy is a desire, while a new backpack is a need.)
How to differentiate between price and value
We were all guilty of paying more for a great brand of shoes or gadgets when we could have gotten a similar item at a lower price.
The idea of this lesson is to help children understand the different ways advertisers or marketers get us to buy their services or products, as well as how to decide what's worth paying for and what's not.
• Educational ideas:
Make a list of the items you need in the supermarket, then check flyers, newspapers, and websites with your kids for items on the list that might be for sale. Compare these prices and see which store offers the best deal for a particular product.
Pick a magazine with your kids and choose an ad to rate. Ask them: What is being sold? What message is the ad trying to convey? What catches their attention in the ad? How does advertising make them feel? How are these ads trying to convince them to buy the product?
How to make the right decisions
The key to making smart and correct decisions is to think about how different choices will affect future outcomes.
Educational ideas:
Buffett suggests modeling good decision-making skills and talking to your children about your decisions as you make them, as well as any domino effect they could lead to. For example: “We want to buy a new TV, but the air conditioner is broken and we need to save money to fix it. If we don't, it will be very hot in the house when summer comes. Once the air conditioner is fixed, we can think about buying the TV.”
Get your kids used to making good decisions about how to save money. There may be a DVD they want to buy. Ask them if they really need it or if they can rent the movie from the library.
It's never too early
Instilling healthy financial habits in your children is one of the most important things you can do to help secure a successful future for them.
“It's never been so early to teach kids about money and finances," Buffett said in an interview with Yahoo Finance in 2013. Whether it is teaching children the value of a dollar, the difference between needs and desires or the value of saving – these are all concepts that children may encounter at a very early age, so it is best to help them understand them.”[1]
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