Warren Buffett, chairman and CEO of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), recently wrote an article about how parents can help their kids learn about money, finances, and investing. Buffett — whose animated cartoon show for kids, Secret Millionaires Club, can be found online — offers practical advice, as well as his childhood experiences learning about money.
Buffett's primary inspiration was his dad:
My dad was my greatest inspiration. 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. Savings was an important lesson he taught.
Warren Buffett bought his first stock, Cities Service Preferred, when he was 11 years old. Despite his early entrepreneurial pursuits selling Coke and gum, Buffett had limited amounts of investing funds set aside. Whenever Buffett wanted to buy a stock as a teen, he first had to sell one of his existing holdings to free up sufficient cash to buy the new stock.
Buffett explains that "parents need to start teaching kids about the importance of managing money at an early age." Why wait until kids are in their teens before teaching the basics of money management?
Simple financial lessons, such as the importance of savings and living within your means, can be grasped fairly quickly by youngsters, especially if they are dealing with money they've earned on their own volition through various odd jobs.
My parents, for example, opened a savings account for me when I was around the age of six. This was not a trust fund or funds from grandparents for university. I actually had my own savings account where I could stash a few dollars here and there.
Sure, my savings account started out around US$20, but over the years it grew to be closer to US$1,000 as I continued to put money into the savings account, earn interest, and build a habit of saving the majority of the money I earned. These savings were used to open my investing account and buy my first stocks.
It is no secret that kids — especially teens — tend to appreciate some independence. Why not, then, encourage financial independence? Although my savings and investing accounts were, until recently, custodial accounts, my dad never "overrode" my accounts or my decisions. It was my choice to decide where to save and invest my money, and I had tremendous fun learning in the process.
"Teaching kids sound financial habits at an early age," Buffett writes, "gives all kids the opportunity to be successful when they are an adult." It is difficult to think of anyone better suited to give advice on finances and investing than Buffett, who continues to live a frugal lifestyle exemplifying the lessons he learned as a kid and now continues to share with other youngsters.
Buffett's recommendations for parents can be boiled down to one message: Teach your kids good financial habits early — as early on as preschool — and be a good financial role model.
As someone who was lucky enough to have parents who supported my curiosity of investing at a young age, I can attest to the recommendations given by the Oracle of Omaha. Unfortunately, parents often put basic financial literacy on the back burner when teaching their kids. Buffett's simple advice represents attainable steps for parents to teach basic finance skills to kids of all ages.
