If parents aren’t discussing finances with their kids, it might mean that they lack a personal finance education themselves.
According to Ramsey Solution’s 2023 Financial Literacy Crisis in America report , 88% of surveyed U.S. adults said that high school did not leave them “fully prepared” for handling money in the real world. Plus, only 17% of U.S. adults said they took a personal finance class in high school.
The sad reality is that the U.S. school system seldom teaches kids what they need to know about personal finance and money management. This can lead to financial disaster when kids enter the adult world and are suddenly faced with paying bills, managing their student loans, using credit cards, and more — all at the same time.
Teaching your kids how to make money “out of thin air” is probably the most valuable finance lesson you can teach them. You’ll want to make sure they understand the difference between earned and passive income. Earned income means you have to work for your money. Essentially, you trade your time for money, such as an employee working for a paycheck.
But, passive income means that your money works for you. This is where the “out of thin air part” comes in. To grow your passive income, you can use your earned income to buy income-generating assets like dividend stocks or rental properties, a practice that is crucial to long-term wealth accumulation and financial stability.
Teaching your kids how to read a financial statement is key to helping them understand basic financial concepts. Kiyosaki says a financial statement is made up of four quadrants: income and expenses and then assets and liabilities. In simple terms, assets like investments and real estate allow you to generate income. On the flip side, expenses like dining out, a new car, or taking a family vacation are all liabilities which are expenses that take money out of your bank account.
How To Get Acquainted with the Right People
It’s often said that you’re a product of your environment. The people you spend your time with will influence your decisions, including when it comes to your finances. Teach your kids to find good friends who are financially savvy and have business smarts. If people in your circle are successful and smart with money, the likelihood of their qualities rubbing off on you is high.
How To Understand the Difference Between an Asset and a Liability
This lesson ties directly into how to read a financial statement. Having a clear understanding of the difference between an asset and a liability will not only help your kids break down their financial statements but can also help them make smarter decisions when it comes to spending and saving.
How Your Money Can Get Legally “Stolen”
Kiyosaki outlines the four “wealth stealing” forces among us: Inflation, debt, taxes, and retirement. Central banks use inflation to decrease the value of the money you have, the banks offer you credit cards that can land you in debt, the government taxes your money, and retirement products like index funds and 401(k) charge fees under the guise of saving for retirement. Teaching your kids to navigate the ins and outs of these four forces and how to stay ahead of the game can mean the difference between financial success and financial ruin.
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