What Rich Parents Teach Their Children About Money

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What parents should teach children about money

The way parents train their kids about money will make a difference between somebody who will eventualy become financially successful and someone who won’t. Let’s explore how rich parents handle their children’s financial education at home.

Rich parents teach their kids the importance of money

Virtually all self-made millionaire or anyone who have achieved financial success believes that money is very important and is one of the first things they teach their kids about it. Rich parents often show how important money is regardless of whether they believe it’s important for happiness or not. They know that money is important to have options and a better quality of life even if they only consider it as a resource and nothing else. Most rich people understand that money gives them freedom from the ability to choose the location for their next vacation to the freedom to choose where to live and even the ability to help others. They know that they can have a less financially stressful life when they have an abundance of it. The poor on the other hand, rarely talk about money and some even say that it is not important. This can affect their kids on the long-term because they will grow up in a financially-driven society while neglecting their financial life. All because they think of money is not important.

They teach the difference between assets and liabilities

One of the most important and basic concepts of building financial independence is understanding the difference between assets and liabilities. If you haven’t heard of these before, assets are things to bring money into your bank account and liabilities to the opposite – they take money out of your bank account. For example, if you buy a house and you rented out to someone it is an asset because it brings cash flow every month in form of rent. If you buy a house to live in, then it is a liability because it takes money out of your pocket every month. Many rich parents teach their kids to build them by assets and avoid liabilities. This way they can create a business or investment that generate cash flow on a recurring basis and avoid the things that generate a negative cash flow on their bank account so they can have a surplus of money. They also understand the power of using assets to detach your time from your income since assets generate cash flow whether you are physically putting in the work are not, you are able to scale and use your time to develop more assets. Rich people often focus on understanding and teaching the spending patterns of the poor vs the rich and why some people earning the same salary and not becoming rich while others stay poor. For example, let’s say we have two people making $6,000 per month, but they have very different spending patterns. The first one gets their paycheck and pays his bills and enjoys his money going out shopping, getting the newest phone, and the latest TV, indulging in the finest restaurant, getting a new car, a nice house and all of that nice stuff. They typically spend their money on things that will make them look good and wealthy, but they actually come back home to bills and a lot of debt. They typically have little to no savings and have years of debt on their credit cards, car payments, and mortgage payments. They are stuck in the rat race and they will take years to get out. Now on to the second person, he also makes $6,000 per month, but this person does not buy a nice house or a nice car. He doesn’t go out every weekend and he doesn’t go in fancy restaurants. He occasionally buys clothes when he needs then but he doesn’t follow the fashion trends every season. He lives in $3000 a month budget and puts away the other $3000. By the end of the year he has $36,000 and puts them into cash flow investments that increases his monthly income. He continues living on his $3,000 a month budget and by the following year he’s able to invest, not $36k but $40,000 since he increased his income into investments that generate cash flow. 10 years later these two individuals will be in two completely different places all due to their spending habits. Now, there’s a lot of people who might be saying there’s a lot of rich people who have nice things, nice houses, fancy cars and all of the luxury stuff. While it may be true but the main difference here is that poor people use their own money or going debt to buy their luxuries, the rich have their assets buy luxuries for them. If you want a car that cost you $500 per month, well it’s time to build another assets the generates you $500 or more per month. This way your bank account is unaffected when you buy this liability – that is another crucial element the many rich parents teach their kids.

How to manage their money

A very good way many wealthy parents teach their kids about money is by letting them into their planning and managing of their household expenses. Many of these parents include their kids when they go over there financial statements and plan their budgets. They often familiarize our kids on the reality of having a living expenses and this gives their children the experience of managing money from an early age which can help when they grow older and they have to manage their own money. This is a big contrast to many parents with a poor mentality. The majority of parents rarely talked about money especially their own income. They typically plan their monthly budgets without their kids if they went plan at all and often associate a negative attitude when planning their monthly expense budget. Oftentimes parents argue and express negative feelings about planning their monthly budget causing their kids to take on similar planning patterns which translates to similar behaviour later in life. Rich parents know the living expenses are a reality of the modern life and focus on associating good emotions on their living expenses. As odd that may sound, many people are grateful for those living expenses because it provides them with a roof over their heads and the ability to live comfortably.

The different ways of earning money

Many wealthy parents teach their kids the different ways to earn money. They also let their children get normal jobs. There are a few reasons for this but one of them is to be able to have them experience the different ways money is earned and teach them how each of them work. For example, one of them is exchanging time for money whether that is working on a job or freelancing. The second is to build systems that generate you income or having money work for you like building a business and leveraging the time of other people as employees leveraging online systems that provide automation or using money to buy assets that generate income for you. The rich focus on understanding and teaching these principles to give their kids the freedom to not be stuck in only one way of making money, but given the ability to learn the other ways money is made. On the other hand, most poor parents only know one way of making money, which is typically exchanging time for money, and sadly it’s the only thing they teach their kids and they eventually grow up only knowing one way to make money which limits their true earning potential.