There are nearly as many ways to earn money as there are to spend it. Today’s teenagers could end up in a salaried role, getting paid by the hour, project or result, earning royalties, from property or investments and charging for their time, knowledge or software. Not only will they likely have multiple income streams at any one time, but these will change throughout their lifetime. The internet holds a plethora of financial advice from various online personalities, but how does a young person discern the genuinely useful advice from the noise, fads and scams?
Davinia Tomlinson is founder of Rainchq, a platform that helps people take control of their financial futures and live their best, most financially abundant lives, and author of new book Cash is Queen: A Girl’s Guide to Securing, Spending and Stashing Cash. Tomlinson started Rainchq after 15 years working in investment management, becoming increasingly frustrated with both the poor representation of women in senior management positions and low engagement of women in general in their own finances. It can start, said Tomlinson, when today’s entrepreneurs and senior leaders are as young as 7-years old, which is when children’s earliest money habits are formed.
Tomlinson believes we, “pick up bad habits and copy others because we were never taught properly about money,” and shares five ways to help future entrepreneurs and business leaders learn money skills that will serve their future endeavours.
1. Help them master deferred gratification
Most entrepreneurs struggle to make money from the get-go. But that doesn’t mean they should stop trying. Pushing on, working harder and turning over more stones will likely mark the difference between a founder that succeeds in a big way and one that gives up and chooses a steadier career path. To be able to persevere involves delayed gratification.
“Developing the gift of patience in achieving goals can be cultivated young to set your children up for entrepreneurial endeavours,” said Tomlinson. So how can this happen? Talk about the effort they put in before they achieved a big goal. Help them see that they got there in the end, even if it wasn’t easy. In fact, the harder something was to achieve, the greater the satisfaction in the end.
“Another way to instil mastery in deferred gratification is to teach them to separate desires into ‘needs’ and ‘wants,’ emphasising the benefit of waiting before spending.” Otherwise, their first big client win would lead to purchases of fancy offices, pricey subscriptions and other things they don’t actually need. Teach them to wait until something is absolutely necessary. “Cultivating delayed gratification bakes in habits that help you have the entrepreneurial edge.”
2. Introduce them to fundamental financial concepts
Selling a millions dollars of product might not make someone a millionaire, but a young person might not grasp this without further explanation. For any business to be successful, they need to make profit, not just revenue. Tomlinson believes that talking about the money that remains, not just what is earned, helps teach teenagers valuable money lessons.
Popular first-time ventures into earning money include car washing, dog walking and sales of cakes or no-longer-required garage items. It would be easy for someone to only focus on what they made and forget that sponges, water, dog treats, cake ingredients and anything you sell has a cost. Plus the cost of your time and anyone who helps. “We need to encourage our future founders to know their numbers,” said Tomlinson.
Like their school timetable, where there is a structure that they learn by heart, revenue, profit, taxes and expenses should be concepts that become second nature. Practice when you’re out and about, in shops, restaurants and using businesses online. “Learning the skills involved in setting a solid budget is one of the best ways to make any future founder in control of their money rather than their money controlling them.” Admittedly, a teen’s priorities will be different to those of a startup, adds Tomlinson, but the basic principles are the same.
3. Try the 50, 30, 20 method
Tomlinson teaches the 50, 30, 20 method, where cash available (pocket money, for example) is split proportionately according to needs, wants and savings. “The ‘needs’ of a teen might be lunch, bus fare, pet maintenance and sports clubs” ‘Wants’ include everything above that: new clothes, subscriptions, classes and possessions. For a teenager, saving might be done within a bank account but as they grow up, this could be their investment pot for property, index funds or similar.
“In life and in business, frameworks are required to ensure we are covering costs but also have space to be agile in rapidly changing markets,” said Tomlinson. “This approach gives flexibility to your teen, and gets them started with their money management skills, crucial for a well-managed startup.”
Of course, financial freedom requires that expenses don’t rise in line with income, otherwise your teen will be trapped in the rat race. As their income increases, as they secure part time jobs or begin business ventures, advance your conversations into putting more aside in investments, and talk to them about the beauty of compound interest and starting young.
4. Help them create a money automation system
In an ideal world, your money works for you, not the other way around. How to spark this idea in a teenager? Automation. “Money can almost be gamified now with automatic investing and saving apps,” said Tomlinson, who recommends that starting your teenager on a sound financial path means opening a good bank account that has “pots” or a similar functionality to help them organise their money according to different goals.
Tomlinson believes this automation should, “automatically distribute your money into your savings pots each month on a fixed date,” which she said is important because if left to do this manually, they could forget, reduce the amount saved, or spend unnecessarily in the present while sabotaging their future. “Think of this as your payment to the future you. You wouldn’t dream of stealing from yourself, would you?”
To further this system, Tomlinson wants your teen to set up pings to “alert them when they’re getting close to zero and when they’ve got a healthy balance every month, with some suggestions on how to make good use of their cash.” She said there is clear benefit in automating some of your financial tasks, in that it “can help your teen keep track of their money more efficiently, which will make it easier for them to manage their business finances as well as personal ones when the need arises.”
5. Introduce a visualisation practice
The tips so far have covered how to spend less and keep more, with the goal of financial freedom earlier than most people. The final tip involves visualising the life they want to live and how money can be harnessed to make it a reality.
Tomlinson said this starts with social media, and being able to use the internet without feeling like they have to have what everyone else has. “Have an open discussion with your teenager about what they are seeing on social media, including material possessions and luxury surroundings, and talk about what they view as the actual components of happiness. Help your teenager figure out what makes them happy, so they aren’t sidetracked by what they see online. Tomlinson suggests you do this by, “defining the characteristics of their dream life. For example, where they might live, what experiences they want to have, and how they want to spend their days.”
Don’t just talk about doing this, she said. Make it a fun exercise. “Get them to grab magazines and print out images found online, along with glue, scissors, and a large piece of paper or cardboard to create a collage of their dream life.” Find inspirational phrases and words that represent the dream life they’ve depicted. The result is their personal vision board, a single snapshot of the grand plans they have for their life. “Get them to put their completed board somewhere they will regularly see it, “ added Tomlinson, so they have a constant reminder of what they are working towards and saving for.
Plenty of successful entrepreneurs harness the power of visualization in achieving their business goals. Being practised in this exercise from a young age might help those images become reality far sooner.
Helping your teen adopt good money habits can set them up for the rest of their life. Tomlinson knows, “It’s almost impossible to be good at something without being taught how to be.” She wants parents of teens to help them to build their wealth and save it too.
By learning delayed gratification, common financial terms, adopting a money organisational system, using automation and visualizing their dream life, your teenager can dream big and have fun too. By doing this, she believes you are helping to, “set them apart from their peers, boost their happiness, reduce their stress and increase their financial literacy that will pay dividends in the world of entrepreneurship.”