Early Retirement: Teach Your Kids How

Early Retirement: Teach Your Kids How

We all dream about early retirement, but many of us don’t start planning for it until we are in our mid-30s or 40s. One of the reasons may be that our parents didn’t spend time teaching us to plan for our financial future. Another reason is that young people often put it off for later, thinking that they still have a lot of time. 

This gives them little time to plan for unexpected events that set them back financially when they do start planning. So early retirement is less achievable. Statistics show that 64% of adults living in the USA have no savings for their retirement. And 42% of people aged 18-29 have no retirement savings at all, along with 26% of Americans in the 30-44 age bracket. 

This tells us that many adults are holding off when it comes to planning for retirement. And before they know it, they’re facing retirement without enough money. That’s why we believe that it’s never too early to start planning for retirement. 

And that’s why we believe that it is our responsibility as parents to teach our children to plan for retirement from a young age! The great news is that it’s entirely possible by teaching them to use the power of compound interest, to invest in the financial markets and by helping them to build their financial literacy skills. By doing so, not only will your child know how to have enough money to retire, but they will also have the opportunity to retire early. 

In this article, we’ll be talking about the ways that parents can help their children to learn to invest from a young age. And, ultimately, plan for their retirement.

The Magic Of Compounding Interest

Did you know that you can start an investment account for your child from the time that they are born? And, you can start by investing in the financial markets for as little as £25 or $25 per month. This allows you to help your child build their wealth, and although you’ll be in control of their fund until they’re 18, you can still use it as an opportunity to teach your child about how it works.

These days, there are apps that you can use to help your child learn all about investing. What’s exciting is that if you can afford to put £200 every single month from your child’s birth, they’ll have £1 Million by the age of 40. 

Read: Want to find out how we calculated this? Read our article How to Raise a Millionaire: Financial literacy for kids

So what is compound interest? Simply put, it means adding the earned interest into your principal balance so that you earn interest on that. That’s what makes compounding interest so powerful, and why investing in the stock markets, and teaching your child how to invest, is the best way to help your child to plan for early retirement

Teaching Your Child To Manage Money

We can teach our children how to invest in their financial future but it is just as important that we teach them how to manage their money. What’s the point of making enough money to retire early and not knowing what to do with it? 

Teaching your child to manage their money well is called financial literacy. Here are some important skills that you can focus on passing on to your children.

Teach Your Child To Budget And Save

Children need to learn how to budget and the younger they start learning the better. While early retirement is great, they need to have a good idea of how to plan how they are going to spend their money. This is where budgeting is useful. Knowing how to budget their money will help them to make smart decisions.

Teach Your Child To Invest

We spoke about the power of investing when it comes to early retirement. But did you know that you can start teaching your child about the concept of investing from as early as the age of three! By starting early, your child can start learning to invest in the financial markets by the time they’re teenagers. This means they’ll have all the foundations they need to be successful investors as adults.  

Teach Your Child About Debt

Debt is something that can set your child back in their financial future. It will also make early retirement less achievable. Studies have shown that when children and teenagers learn about financial skills at home or school, their credit scores remain high and they are less likely to have bad debt. As parents, we can also teach our children about good debt.

Practical Ways to Develop Your Child’s Financial Literacy Skills

Okay, so we know what we need to focus on to help our children with their financial literacy skills. The question is how? We’ve got some practical tips for you and will discuss these here.

Get Them Into The Stock Market

There are many ways to become an investor, but we recommend that you teach your children about investing in stocks. This is a great way for them to invest in their financial future and plan for early retirement. Start with the basics using an app and then move on to teaching them about investing in actual stocks. Again, the earlier they learn, the more practice they’ll get and the better they’ll be at investing when they’re adults!

Let Them Work For Their Allowance

When it comes to handling money, practice is important. Teaching your children to work for their money is an invaluable lesson. It teaches them to appreciate their money and the value of working hard for it. It can be as simple as agreeing on an allowance for the chores they do each month. When they learn the value of money from a young age, they’ll be wiser with their finances as adults.

Encourage Your Child To Create Earning Opportunities

There are so many ways to encourage your child to earn money. As parents, we can teach our children to look out for opportunities where they can make money. This means teaching them to be young entrepreneurs. It could be something like walking the neighbour’s dogs or selling lemonade. The point is to teach them that there are always opportunities available for them to earn money. This is a lesson that will help them to learn about the value of money and could even help them work towards early retirement!

Speak Honestly About Money

For some parents, discussing money with their children feels uncomfortable. This is especially true when money was a sensitive topic growing up. The reality is that we need to be talking about money honestly with our children. The more they know about how we handle money, the more they’ll learn about how to manage their own. Children are capable of understanding more than we believe, and involving them in honest conversations can be a great way to build their confidence in their financial literacy skills. 

The Bottom Line

There’s no better time to start teaching your children about planning for their future than now. Learning how to manage money and invest in their early retirement is not something that can be taught overnight. It takes years of practice. In this article, we discussed the different ways that you, as parents, can help your children to build their financial literacy skills. 

If you want to know more, you can watch our webinar replay for free where Dr. Aderemi Banjoko talks about how to teach your children about wealth, finance and investing.

GT Scholars