Warren Buffett is arguably one of the best investors of all time and has an excellent track record of creating and maintaining his wealth dating back to his early entrepreneurial days starting at just five years old.
You’d think that the hugely successful magnate and philanthropist would be too strapped for time to mentor as well, but that’s not the case.
Over the years the Oracle of Omaha has offered many nuggets of wisdom for parents on how to teach their own children about money.
Here are six of his best tips for parents wanting to help turn their toddler into the next Warren Buffett.
1. Start the conversation early
“Sometimes parents wait until their kids are in their teens before they start talking about managing money — when they could be starting when their kids are in preschool,” Buffett told CNBC.
He explains that you don’t need to go into the nitty-gritty with your children from a young age, but doing something as simple as explaining that money doesn’t grow on trees is enough to begin the conversation about money.
It takes hard work and time to make money, and the sooner a child understands this the better.
2. Teach the value of saving
“Saving even a little bit of money on a regular basis pays off,” Buffett says in his Secret Millionaires Club.
“Instead of spending money on a soda, which you don’t really need, put it in savings, and it will make even more money for you by earning interest.”
As soon as kids are old enough to understand the concept of money and where it comes from, the next step is to introduce the value of saving.
A great way to do this is to get them involved.
Set up a new piggy bank or even a savings account and get them earning some coins in return for chores.
It would even be valuable to set a savings goal — think of a new toy — and have them work towards it.
It wouldn’t take long for them to make the connection between earning, saving, and reaching a financial goal — being able to physically see the amount add up would be very valuable.
Some apps even let you assign chores, set up automatic deposits for their allowance, and even deposit parent-provided interest.
They’ll be able to see how much money they’re making and saving while you'll have complete control over how much they can spend with the card and where.
3. Give them a financial role model
“My dad was my greatest inspiration,” Buffett said in an interview with CNBC in 2013.
“He was my hero when I was six and he is still my hero now. He is an inspiration to me in every way. What I learned at an early age from him was to have the right habits early.”
The best way to inspire the next Warren Buffett out of your child is to act as a great financial role model yourself.
That means making smart financial decisions, keeping on top of your finances, and managing your debt.
You don’t need to be an expert investor, but you do need to show your kids that you’re financially responsible.
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4. Help them separate ‘needs’ from ‘wants’
As Benjamin Franklin once said: “A penny saved is a penny earned.”
And Buffett agrees.
It’s a tough early lesson but it’s important for kids to understand that they can’t have everything.
Helping them to identify the difference between what they want and what they need could work wonders for their financial independence and stability as they enter adulthood.
How do you do this?
Buffett suggests having your kids make a list or visual collage of 5-10 things they’d like to buy, then go through it with them and decipher what falls into the need category and want category and why — i.e: a new bag is a need, but a new toy would categorise as a want.
5. Fuel their inner entrepreneur
Buffett’s entrepreneurial spirit dates back to when he was a little boy.
He started sharpening his business skills back at just 5 years old when he started selling sticks of gum to other kids in the neighbourhood.
Before long he worked out that he could get a better profit margin by buying packs of Coke and selling the cans individually.
The lesson here is that enabling and encouraging your kids to find a way of making money will help them down the road.
From setting up a cake stand to collecting bottles and putting them in the local earn and return or container deposit machine, helping kids fuel either inner entrepreneur helps teach lessons about salesmanship, goal setting, and even problem-solving.
6. Teach yourself
“Developing a life-long pursuit of learning and educating yourself is important for every individual,” Buffett’s animated self says in an episode of Secret Millionaires Club.
That’s good advice for parents and actually anyone who is looking to start their educational journey.
“What I always say is, read to learn,” says Buffett, who famously reads several newspapers each day.
“Don’t be afraid to keep learning by taking a class or reading about innovations and new technologies.”
After all, you’re only human and not everyone has all the answers.
Showcasing this to your kids is also incredibly important.
Show them that pursuing their hobbies, going through that extra reading material, doing those extra classes, and anything else they can do to better themselves is not only hugely beneficial but teaches them that continual learning is the best way to get ahead in the long run.
That dedication and a passion for knowledge will serve them well in all areas of life, including their finances.