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Helping Your Children

Helping childrenHelping Your Children

It’s every parent’s dream to see their children succeed in life and sometimes that means helping them along the way. But how much help should children get? They need enough to give them a good start, but not so much that they become dependent on parents to get by.

One of the greatest gifts you can give children is the ability to manage their money effectively. Teaching them basic money management skills starts before they go to school by giving them their own money each week. Deciding how much money to give as pocket money is easy. Just work out what choices you want your child to be responsible for and give them enough money to make those choices. Early in life, choices will be around simple things like buying toys and ice creams. By the time they leave school, children should be able to confidently making choices about spending now or saving to spend later, and about budgeting for personal expenditure such as clothes, phone, transport and entertainment. Their pocket money should be enough to cover these expenses to a basic level, supplemented by earned income.

Helping your children with the costs of further education makes sense only to the extent that interest free student loans do not cover the costs. From a financial point of view, it is better to contribute to the deposit on their first home than to pay off interest free debt. Setting aside money to invest for your children’s future is not necessarily the best use of money if you still have a mortgage. Instead, concentrate on reducing your mortgage as quickly as possible so you are in the best position to help your kids financially at the time when they most need it. This is likely to be when they themselves have young families.

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Four Things Young People Need to Know

YoungPeopleFour Things Young People Need to Know About Money

It is rather tragic that we don’t acquire the knowledge and insight we need to get the most out of life until we are near the end of it. The basic principles of financial success do not change over time and there is much that young people can learn from those who have been before them. Despite their meagre household incomes and large families, our forebears were able to provide the essentials of life for their families without handouts and without going broke. Saving was imperative, because it was up to each individual to make their own way in the world.

While we expect to have a higher standard of living than previous generations, there are four important principles our forebears used which young people need to know:

  • Get into the habit, starting with your first pay, of not spending everything you earn. Saving is not the only way to build wealth, but spending more than you earn is a fast way to lose what you have. A habit formed early will last a lifetime.
  • Have clear goals for how you want to use your money and manage it proactively. You can choose how and when you want to spend your money, so do it in a way that will achieve your goals. Money can only be spent once, so make sure you spend it on things that are important to you.
  • Don’t be greedy. Take your time to enjoy life and build wealth. Those who acquire wealth slowly and spend it slowly do better in the long run because they don’t take unnecessary risks.
  • Avoid going into debt to buy things that don’t increase in value. Taking on debt means high outgoings and less ability to create wealth.

If we all lived this way, how much wealthier we would be!

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Good Habits for Kids

Good Habits for Kids

Financial literacy for kids is something that Lucas Remmerswaal is very passionate about. A New Zealander, Lucas has written a series of books for children, based on the financial principles used by one of America’s most successful investors, Warren Buffett.

In 2011, Buffett was ranked the third wealthiest person in the world with assets of around $47 billion and this year, Time magazine named him as one of the most influential people in the world. Buffett is a self-made man, having started accruing his fortune early in life through selling chewing gum, Coca Cola and magazines door to door. He bought his first shares at the age of eleven and went on to invest in numerous businesses throughout his life. He is now the primary shareholder, Chairman and CEO of Berkshire Hathaway, a multinational conglomerate holding company based in Omaha, Nebraska.

After seeing a large proportion of New Zealanders lose their retirement savings during the Global Financial Crisis, Lucas Remmerswaal decided to become a crusader for financial literacy in schools and to teach children the importance of being financially smart. Over the last two years, he has developed three children’s books that set out, with beautiful illustrations, the principles that made Warren Buffett successful. These books are The Tale of Tortoise Buffett, 13 Habits – Standing on the Shoulders of Giants and The A-Z of 13 Habits. A fourth book, 13 Habits That Made Me Billions is due out soon. Early in 2012, Lucas embarked on a bicycle trip covering the length of New Zealand, visiting schools along the way to spread his message. Integrity, Intelligence, Frugality and Gratitude are some of the 13 Habits that Lucas believes anyone can use to create extraordinary results in their lives. Click here for more information on Lucas and free downloads of his books.

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Money for Students

Money for Students

The start of the university year sees thousands of eager school leavers leaving the safety and comfort of the family home and beginning their journey towards independent living. For parents and students alike, the dilemma of how to fund academic pursuits is not an easy one to resolve. Taking on debt is something that most prudent money managers avoid. There are, however, two categories of debt; ‘good debt’ and ‘bad debt’. The question is, in which category do student loans belong?

Putting it simply, bad debt is debt which is usually incurred to buy things that do not produce an investment return such as cars and holidays. Good debt is money which is borrowed to buy assets which produce a return such as an investment property or a business. Whether student debt is good or bad depends on how the money is used. Study is an investment that provides a future return. The best return will be gained from a qualification that will lead to higher levels of future income. The lowest return will be gained from qualifications with poor employment prospects or from having a great time partying but failing to get a qualification at all.

Student loans are repaid by way of an additional deduction from income once the student starts working. In effect, a student loan is simply an obligation to pay a higher rate of tax for a period of time and in that way is different from a personal loan.

What should parents do? Leave your money in the bank for as long as your child’s loan is interest free. Encourage your children to live as frugally as possible to keep borrowing to a minimum and to take courses of study that will lead to better income prospects. That way, only good debt will be incurred.

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Money for Christmas

Money for Christmas

Giving money to kids for Christmas might seem like an easy escape from choosing a gift but in fact it can be a great way to teach kids important lessons about money and life.

If your kids receive money from you or from others at Christmas encourage them to make a wish list before they spend it. Against each item on the wish list, write the approximate cost and add up the total cost. The first lesson for kids to learn is that you can’t have everything you want with the money you have available and it is necessary to decide on the most important priorities.

The next discussion to have is about money and time. There are two important lessons on this topic. Firstly, kids need to understand that money can only be spent once; either now or later.  Budgeting to have money available over a period of time is a key financial skill. Secondly, if you choose to spend your money later, you can earn interest on it in the mean time and have more to spend. Teach your kids about the power of compound interest, to show them how much their money can grow the longer it is invested.

As well as spending and saving there are other options for your kids to learn about. Investing in a business can be a great way to multiply your money, or lose it depending on how well the business does. Encourage your kids to think about how they could use their money to set up simple business – perhaps buying unwanted gifts and selling them for a profit! Last, but not least, talk to your kids about the importance of helping others who are less fortunate. Giving to others is a great way to realize just how wealthy you really are.

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