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This article is from a series of articles about giving your children the life-skills necessary to effectively manage their money. To go to the table of contents, click here.

Teaching your children about how they can create wealth is critical. The sooner they grasp the concept of wealth and how they can achieve it, the more likely they will be able to control their own financial destiny.

Wealth is created by building financial value in assets and rarely created by exclusively working for someone. Some assets are capable of increasing in value (productive assets) where as others may provide personal satisfaction but are not likely to increase in value and usually decrease in value. As clearly reinforced by the stock market recently tanking It is important that you work with your children to understand that the way to create wealth is to accumulate these productive assets.

Examples of non-productive expenditures include :

  • Automobiles

  • Vacations

  • Gambling

  • Expensive Meals

  • Miscellaneous Entertainment

  • Fancy Clothes and Beauty Products

Examples of productive expenditures include :

  • Savings Accounts, CDs/Share Certificates, Money Market Accounts

  • Mutual Funds, Stocks and Bonds

  • Buying a Business

  • Real Estate

  • 401Ks and IRAs

  • Continued Education

Throughout their lives your children will be presented with choices on how to spend their money and the more they use their money to acquire productive assets, the better off they will be financially. Clearly, as is the case with everything in life, they must find balance -- we all need to have fun too! They clearly should, and in some cases must, make expenditures on non-productive assets. But, they should always understand how any given expenditure contributes to their financial goals.

Setting Goals:

Setting realistic yet aggressive goals are an important part of achieving wealth. Regardless of our age, we all need something to shoot for, something to keep us disciplined and focused on achieving our goals. Intermediate goals should also be set, such as going to college, which provide the necessary stepping stones to achieve long-term goals.

Example goals include:

  • Graduating from college or a tech. school.

  • Owning your own business before you are 30.

  • Saving enough money for a down payment on a home.

  • Buying your first home.

  • Saving the maximum allowable in your 401k plan.

  • Amassing a net worth of $100K, $500K, a million dollars.

  • Retiring before you turn 55.

  • Having sufficient funds to pay for your kids college education before they turn 18.

  • Becoming financially independent so that you can spend more time with your family and/or volunteer work.

The focus of building wealth should not be to be rich, but rather to have the flexibility to do what is important with our life. Money certainly does not buy happiness, but it does provide us with more control over how we choose to live our lives.