Warren Buffett and 9 principles of raising children

Before becoming CEO of Berkshire Hathaway, legendary investor Warren Buffett started his business at the age of 6 by buying and selling chewing gum, soda, and magazines.

"My dad was my biggest inspiration. What I learned from him as a kid was how to form habits and saving was an important lesson he taught me," Warren Buffett shared.

When asked what he thought was the biggest mistake parents make when teaching their kids about money, the billionaire said: "Sometimes parents wait until their kids are teenagers to start talking about money management, even though they could have done it when they were in kindergarten."

Nowadays, many parents often underestimate or ignore teaching their children how to think about money. However, this is one of the important factors that affect children's future success.

Billionaire Warren Buffett in a course teaching children about finance.

You may not be as business-savvy as a billionaire, but you can refer to the 9 secrets he reveals below to teach your children about finance in a smart and effective way.

1. It's never too early to learn

"Parents often wait until their children are teenagers to teach them about money management. However, children can learn about this issue before they go to school," the billionaire told CNBC.

So how do you help a 3-year-old gain some basic financial knowledge? Forget the notion of the "stock market" and focus on the basics: work makes money.

You can explain to your child that spending money is more than just swiping a card. Earning money is a hard process, so your child shouldn't waste it.

2. Little by little makes a big difference

First, teach your child basic financial concepts and help them feel happy with small achievements.

For example, a 16-year-old girl can have her own savings account. Her parents can act as advisors, offering advice when needed. Even though she is still in school, she can find a summer job to earn some extra money.

Then, you should get your child used to making simple choices. If he buys this now, he won't have enough money to buy the more expensive one when he wants it.

Buffett believes that the key to success is to start small and stick to your choices until you see the impact. For example, how is it that Child A saves enough money to buy a car in high school, while Child B doesn’t? The secret is that Child A chooses to drink water instead of soda with every school lunch.

3. Be a role model for your child

Children are greatly influenced by their parents' spending habits, both good and bad. Warren Buffet says he owes his father for helping him develop good habits.

"My father is my biggest inspiration. He was my hero when I was 6 years old, and he's still my hero. He's my inspiration every day. What I learned from him as a kid is to have good habits early," Buffett shared in an interview with CNBC in 2013.

So, do you want to be an ideal parent to your child? Inspire your child by making wise financial decisions. That doesn’t mean you need to be a professional investor, but at least let your child know how you manage your home, your spending clearly and effectively.

First, pay off your existing debt. If you’re struggling with high-interest loans, such as credit cards, consider a debt consolidation loan, which combines multiple debt obligations into a new loan with a more favorable term structure, such as a lower interest rate.

4. Don't save what is left after spending, spend what is left after saving.

This is a famous quote from billionaire Buffett when discussing savings. To apply, you can teach your children to set a target amount of money, then plan to save and track spending.

For example, every time they receive a certain amount of money, they can take a percentage and put it in a jar before calculating what they will spend the rest on. They will also realize that if they cut down on spending, they will have more money to save.

Parents are the closest role models that children often want to imitate. Therefore, in daily life, you can show your children that parents do not spend money on unnecessary things, or choose some things that are cheaper but the quality is not too different.

Helping your children instill healthy financial habits is one of the most important things you can do to ensure they have a successful future.

5. Teach your child to distinguish between Need and Want

A hard lesson for children is: You can't have everything you want.

Before children learn to spend money responsibly, parents need to teach them to clearly distinguish between needs and wants.

In an interview with CNBC, Buffett advised parents to have their children list 10 items they want to buy and go through each one in turn, marking it as a "need" or "want" and explaining why.

You can teach your child how to make decisions when shopping. For example, not all stores have the same prices. When shopping on apps like Amazon or Target, your child can compare prices and find a good deal.

6. Sharpen your skills

Don't have all the answers yet? That's okay, successful people never stop learning.

“It is important for every individual to develop lifelong learning habits,” Buffett’s character says in an episode of the animated series Secret Millionaires Club.

It's also good advice for parents and even for those just starting out on their learning journey.

"What I always say is, learn to absorb knowledge. Don't be afraid to take a class or read about new innovations and technologies," Buffett shared. Every day, this billionaire himself always reads several newspapers.

Start by encouraging your child to pursue interests, such as an after-school program. Their dedication and passion for knowledge will serve them well in all areas of life, including finances.

7. Distinguish between bad debt and good debt

At some point, your child may want to take out a loan to fund a business idea that has just come to mind. While Buffett says that no debt is a good thing, at least such investments for the future are worth supporting, as opposed to taking out a loan to spend money that is not rational.

It is the parents' job to discuss thoroughly, helping their children understand the difference between bad debt and good debt, in order to prevent the first bad step.

8. Never stop learning

Feeling inadequate in a certain area? Don't worry, successful people are always learning. Buffett's character in the animated series Secret Millionaires Club has a line: "It is important for every individual to be a lifelong learner."

This is good advice for parents, especially those who are just starting out on their learning journey in any field.

Buffett also shared: "I always remind people to never stop learning. Don't hesitate to sign up for classes or read more about technology and innovation."

To encourage their children’s learning spirit, parents should let them pursue their passion. They can take extra classes or find reading materials. Passion for learning and strong will will help a lot in their future life, including financially.

9. Nurture your passion for business

Long before founding Berkshire Hathaway, when Buffett was just 6 years old, he earned his first coins from selling chewing gum in his hometown. Seeing the new potential, he even bought a pack of 6 cans of Coca Cola for 25 cents and then sold each can for 5 cents, making a profit of 5 cents.

Your child may not grow up to be the head of a multinational corporation, but encouraging them to seek out money-making opportunities will be beneficial to their future career. Even opening a lemonade stand will help them learn problem solving, goal setting, marketing, and customer service.

You might consider giving your child a small amount of money to invest, using an automated investing app. Some apps can even collect the spare change from your small daily purchases and put it into an investment account for your child.

As your child grows, they can take over that account, using the lessons you taught them to grow that account even larger.

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