I’m A Self-Made Millionaire: Here Are 5 Moves I Told My Kid To Make To Get Rich Early

If 70% of multimillionaire families lose their wealth by the second generation and 90% lose it by the third, parents hoping to create generational wealth have their work cut out for them.

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So how can you ensure your children become the exception? What money moves do proactive self-made millionaires teach their children to achieve their own wealth early?

Consider these ideas as you start talking with your children more about money .

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1. Talk About Money — Strategically

The rich talk about money. They aren’t encumbered by some vague money taboo. But rather than trying to show off or brag, they talk about financial strategies.

“Talk about money more often to make it normalized and address it as a tool in our lives,” recommended Gloria Garcia Cisneros , a wealth manager and certified financial planner. “Acknowledge the emotions and feelings around money because they shape how our children view money. This will foster a better relationship with money as they grow up and enable habits that will stick. This foundation will do wonders.

“We don’t realize how much fear, anxiety or scarcity mindset we may be passing on to our children if all they see is the avoidance of money conversations growing up.”

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2. Start With Your Target Savings Rate

You’ve heard it before: start with the end in mind.

In the case of budgeting, the end is setting aside a certain percentage of your income for building wealth. If you spend every dollar you earn, it doesn’t matter how much you earn — you still end the year no richer than you started it.

“There is no get rich scheme that will make you a millionaire overnight,” said Jamie Ebersole, CFP and founder of Ebersole Financial . “The best way to build a sizable net worth is to start saving, and do so early in life. My dad always counseled me to save 20% of everything I earned, and I did. Teaching your kids to save that birthday money and invest in a low cost mutual fund or ETF will start them on that path.

“In order to feed the savings habit, they will need to live beneath their means so they have something to invest. This doesn’t mean they will have to deprive themselves of small luxuries, but it will teach them to be thoughtful about how they spend.

“In the long run, financial success comes down to discipline. The one truth that I do know after many years in the industry is that spending too much to support a specific lifestyle usually leads to poor outcomes.”

3. Model Realistic Budgets With Expenses

Does giving your children an allowance teach them how to budget?

Of course not. Quite the opposite — it teaches them that 100% of every “paycheck” can go toward discretionary spending.

In the real world, adults have mandatory expenses like housing and utilities, transportation and groceries. To model a more realistic budget, many wealthy families charge their children a small amount for rent, utilities and other real costs. Instead of giving them a $30 allowance, perhaps they give them $100, but $70 of it must be paid out in obligatory expenses throughout the month. Failure to pay on time results in some practical penalty.

“Incorporate practical exercises and recommend budgeting tips as they grow up,” suggested Garcia Cisneros. “Teach them some simple bucketing or envelope methods that are more digestible. Include them when you are running your own bills, buying a car or donating money. Involve your kids in financial thought exercises so they become normal. The goal is for exposure.”

4. Invest Through a Roth IRA

Roth IRA contributions don’t come with any immediate tax benefit. You don’t get a tax deduction — you invest with after-tax dollars.

But teenagers and young adults in college often don’t pay any income taxes anyway. They fall in the 0% income bracket.

Once invested, contributions to Roth IRAs grow and compound tax-free, and you pay no taxes on withdrawals in retirement. And when your money has many decades to compound, small contributions balloon into gigantic portfolios.

Chris Urban, CFP and founder of Discovery Wealth Planning , said: “I recommend opening and funding a Roth IRA as soon as children are eligible to contribute. Perhaps your children have part-time jobs in high school. Get started then. There is no minimum dollar amount.

“Contribute, invest and let the power of compounding take over. As a parent, perhaps you consider matching their contribution as an incentive if it’s needed.”

Ebersole agreed. “Using money earned from babysitting or lawn mowing or lifeguarding to fund a Roth IRA is a very powerful way to grow money tax-free for their lifetime. Start early to get the benefits of compound interest.

“If you teach your kids good money habits early, they will tend to stick around for the long term and will give your kids the best shot at reaching their financial goals.”

5. Build Streams of Passive Income Early

Teach your kids early on that trading time for money is only one way to generate income. They can also earn income from investments and other passive sources.

“It’s a powerful lesson when you first realize you don’t have to work for income; your investments can do it for you,” said Ben Reynolds, founder of Sure Dividend . “Many people don’t learn that lesson until well into adulthood. The younger your children learn it, the earlier they can start creating streams of passive income to supplement their paycheck.

“Once your kids truly grasp that lesson, they realize that they control how long it will take them to reach financial independence. When you can cover your living expenses with passive income from investments or businesses, work becomes optional. It’s just as true for 30-year-olds as it is for 65-year-olds.”

Final Thoughts

Talk to your kids about money early and often.

Teach them to constantly seek expert help, to ask questions and to approach personal finance and investing with curiosity rather than arrogance or pride. The more you learn about tax strategies, investment strategies and income strategies, the greater your ability to build wealth.

And there’s always more to learn.

This article originally appeared on GOBankingRates.com : I’m A Self-Made Millionaire: Here Are 5 Moves I Told My Kid To Make To Get Rich Early