Public education does very little to prepare children to manage their finances. One of a mother’s jobs is to teach her children how to manage their money. According to the United States Financial Literacy and Education Commission, there are five key pillars of financial literacy: earning, spending, saving and investing, borrowing, and asset protection.

Teaching Children about Money is a Parent’s Job
Super perceptive, children are always watching. They’re likely to imitate our financial habits, whether prudent, moderate, or reckless. Through our actions, we start teaching them when they are young. By the time they’ve reached elementary school, most children have already developed certain attitudes towards money which often last throughout their entire lives. Children who learn smart money management strategies when they are young tend to manage their finances more intelligently as adults.

Earnings
Money can be earned both actively and passively. One of the most common active earning strategies is to have a job: trade time for money. Another way is through entrepreneurship: build a business that creates value in the marketplace and subsequently spins off cash. No matter what we do to earn money, we must help our children learn one fundamental lesson about active income: if we want more, we must be of more service to those from whom we seek our return—if we want less, we only have to reduce this service. Passive income is acquired automatically with minimal effort or maintenance—usually a result of investing to establish and maintain an income stream. American author, Robert Kiyosaki’s board game Cash Flow is an excellent way to teach children about the importance of passive income.

Spending
American educator, James W. Frick, wrote, “Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.” Spend wisely. If we spend money like a drunken sailor, we can’t invest in something more meaningful, such as real estate or an asset that can produce the fruits of passive income. It is healthy for us and our children when we develop the self-discipline to spend wisely. Setting internal rules for ourselves can help us avoid impulse purchases. If we allow money to burn a hole in our pockets, we shouldn’t be surprised if we later don’t have anything meaningful to show for our efforts.

Saving & Investing (AND GIVING)
Teach children to save, but don’t let it stop there. The real power of savings comes from investing. Albert Einstein famously said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays for it.” Youngsters are the greatest beneficiaries of the most powerful driver of compounding interest: time. Show kids the impact of a 30-year vs 50-year amortization schedule; this awareness can be a game-changer that they’ll thank us for later.

While not embraced by everyone, tithing at church, and donating (both time and money) grant us the privilege of helping others. Counterintuitive, but true, giving often makes us feel better than receiving. When at least one parent models generosity, children are more likely to pick up this good habit. We have a responsibility to help others, particularly if we are able.

Borrowing
Practical, sensible, pragmatic borrowing can help us achieve important life goals, such as owning a home, building a business, and furthering our education. Foolish borrowing can have disastrous financial implications. The basic concepts of borrowing are self-explanatory to anyone with a high school education. As a borrowing event draws near, consumers are well-suited to research interest rates, future expectations of interest rates, terms, and contingencies.

Once understood, borrowing is a rather simple process. Intelligent use of credit cards—primarily to build and maintain a good credit score—can entice financial institutions to offer better rates, better terms, and more competitive borrowing power. Conversely, credit card mismanagement can send us into a financial maelstrom of vicious and seemingly unending debt. If we are smart with credit cards, we can even add our children as authorized users to help them build their credit. One of the greatest drivers of a good credit score is credit utilization rate: it is best practice to NEVER carry a credit card balance greater than 30% of the credit limit. A valuable piece of advice: if credit utilization exceeds 30% due to a large purchase, one best practice is to make an immediate payment to bring credit utilization back below 30%.

Asset Protection
There is insurance for every peril. Mothers should protect our family and our assets. By periodically reviewing our portfolio, we can ensure that we are not vulnerable to over-exposure. Inheritance planning is an important and sometimes overlooked responsibility. We can safeguard our family’s assets by choosing a strategy to minimize tax consequences upon our eventual passing. American investor, Warren Buffett, has said that the ideal inheritance is “enough money so that they would feel they could do anything, but not so much that they could do nothing.” As we draft/revise our will, make considerations that help children keep family assets intact—while keeping them grounded, healthy, and productive.

Lessons from The Richest Man in Babylon
This timeless classic from George S. Clason offers seven principles for building wealth. “Money is plentiful for those who understand the simple rules of its acquisition.”

1. Start thy purse to fattening—of every TEN pennies earned, make saving ONE standard procedure.
2. Control thy expenditures—prioritize needs over wants and spend wisely.
3. Guard thy treasures from loss—don’t expose your wealth to unsafe liability.
4. Make thy gold multiply—make your money work for you.
5. Increase thy ability to earn—increase your value to the marketplace.
6. Make of thy dwelling a profitable investment—be house-rich / not house-poor.
7. Insure a future income—create passive income.

Summary
Good money habits don’t form out of thin air—they are learned. Don’t tell children how to manage money, show them. “Caught” is much more influential than “taught.” Start when they’re young; they’ll form smart attitudes and be better equipped to manage their finances as adults—when there’s a lot more at stake.

“Just as the rich rule the poor, so the borrower is servant to the lender.”
—Proverbs 22:7 NLT