If anyone knows how important financial responsibility is, it’s without doubt Warren Buffett, and when it comes to teaching children about money, the billionaire has plenty of advice to give.
His biography, The Snowball, tells how at just six years old he bought packs of Coca-Cola and sold the bottles individually, making a small profit. He also sold magazines and chewing gum door to door in his neighbourhood.
In fact, Warren Buffett’s first businesses earned him more than $50,000 (in the money of the time) before he turned 16. You could say that from childhood he cultivated the entrepreneurial mindset that would make him one of the greatest businessmen in the world and possibly the best investor of our time.
But none of this happened by chance. To give rise to a mindset like that in a child, you need inspiration, motivation and someone to guide you.
Warren Buffett: my father was my greatest inspiration on money
In an interview with CNBC in 2013, Buffett said his father was his greatest inspiration. What he learned from him at an early age, he explained, was to build the right habits very early on, and the importance of saving was the first thing his father taught him.
The biggest mistake parents make with their children and money, according to Buffett
When asked what he thought was the number one mistake parents make when teaching their children about money, Warren Buffett said that parents sometimes wait until their children are teenagers before they start talking about how to manage money, when they should be doing it as early as preschool.
And yes, you read that right: preschool. Today we know that 80% of our brain development happens by the age of three. Different studies have shown that children can understand basic money concepts between the ages of three and four. By seven, a child can have developed the basic concepts related to future financial behaviour. And that child will have a competitive advantage over other children.
An important note: I’m sure many parents will now think it isn’t appropriate to teach a child about money concepts at such a young age, that a child is a child and should have fun. However, if we don’t want a child to learn a few basic concepts about money, but that same child is up to date with every TikTok trend, we’re already starting to have a problem with that child.
Lessons Warren Buffett taught his children about money
Most parents are aware of how important it is to teach their children about money, but for Warren Buffett there’s a huge difference between knowing and doing.
In fact, according to one survey, more than 40% of parents talk to their children about money when they’re 15 or older, while almost 20% of parents never talk to their children about money at all, apart from the usual “do you think money grows on trees?”
In 2011, Warren Buffett took part in a cartoon series called Secret Millionaires Club, in which the main character was Buffett himself, acting as a mentor to a group of children. Over the show’s 26 episodes, each one tackled a financial lesson, such as how a credit card works, why a financial plan matters or where the money we spend goes.
Buffett says he taught his own children three of the financial lessons that appear in the series: simple lessons meant for business and for life.
How to be a flexible thinker
The aim of this lesson was to encourage his children to look for creative ways to solve problems and not to give up just because something doesn’t work the first time. To teach them what’s known as “thinking outside the box” when facing future financial challenges.
One of the activities Warren Buffett used to teach his children was to challenge them to find new uses for old things around the house. In other words: turning trash into treasure.
His children ended up turning bottle caps into chess pieces, cereal boxes into magazine holders, and so on.
According to Buffett, this helps them think critically, save money and help the environment along the way, all at the same time.
How to start saving money
Possibly one of the best financial lessons you can teach a child (and certainly something even adults need to learn) is to tell the difference between wants and needs. Today, at a time of heavy exposure to social media, this lesson is vitally important.
To do this, Buffett gave each of his children two money jars: one for saving and one for spending. Every time they received money from their weekly allowance, a gift or money earned walking the neighbour’s dog, he asked them how they wanted to split it between the saving and spending jars.
Then he told them to write down on a sheet of paper ten things they’d like to buy with that money. Afterwards, he went through each of those ten things with them to mark whether what they wanted to buy was really a want or a need. For example, a new toy is a want. A new school backpack could count as a need.
Telling the difference between price and value
I suppose we’ve all fallen into the trap at some point in our lives of paying more for a particular brand of clothes or trainers when we could have got an equally good product for less.
The sooner you teach your child not to fall for marketing traps or get carried away by fashions, the sooner a child will develop their own personality and won’t feel the need to follow passing fads.
It may seem silly, but simply needing to buy a particular brand of trainers to fit in means that 20 years later you’ll end up making a bad investment, buying shares in companies simply because everyone else is buying them.
Remember, it’s better to have a 10-euro wallet with 300 euros inside than a 300-euro wallet with 10 euros inside. With the second, you look like you have money. With the first, you simply have it.
What you start, you finish
Don’t let your child leave things half done. Starting a jigsaw puzzle and leaving it unfinished because it’s hard may seem harmless at four years old, but you’re already building the habit of quitting when things get tough. That habit will make the same person, at 30, give up in the face of life’s difficulties.
If they start something, they have to finish it. If difficulties come up, teach them to ask for help, but they must finish what they started.
It’s never too early to teach children financial habits
Instilling healthy financial habits in children is one of the most important things you can do to make sure their financial future is much better. And it’s never too early, because for better or worse, most of the problems and worries we’ll have in life will be related to money.
So the sooner they’re clear on money concepts, the sooner they’ll start gaining a competitive advantage over other children.
See also: Kevin O’Leary: why you shouldn’t leave all your money to your children
