Financial Independence

What it is and how to learn it early

Financial independence is mostly defined as getting to a stage in one’s life where there is enough income to cover one’s current lifestyle, without needing to work. It requires time, patience, the right mindset, sound financial habits and a belief that it’s possible.

In his book, Rich Habits – The Daily Success Habits of Wealthy Individuals, Tom Corley found it was the mindset and habits that kept wealthy individuals on track to financial independence.

Everyone starts at a different place on their journey to financial independence, but the goal, the lessons and the milestones along the way are the same.

Five financial independence habits to develop and nurture in children include:

The Gratitude Habit
According to a study in the journal, Psychological Science, feelings of gratitude can help delay gratification, reduce impulse spending and help us feel more content, thus reducing our need to spend. Gratitude can therefore be a powerful saving strategy.

Some Ideas:

1. Go on a gratitude nature walk and model being thankful with statements like, “I am grateful for… because…”.
2. Create gratitude or “Things That Make me Smile,” jars.
3. Design a gratitude tree poster and fill in the leaves with things to be grateful for.

The Goal Setting and Tracking Habit
Tom Corley, who spent five years studying the habits of 233 wealthy individuals, found that writing down goals and having one primary life goal to focus on helps keep us on track towards our long-term goal of achieving financial independence. Introduce children to financial goal setting with the WOOP method: Wish, Outcome, Obstacle and Plan. WOOP helps children learn how to create a specific and measurable goal, identify potential obstacles, and create an action plan to achieve their goal and prepare for the potential obstacles.

The Multiple Streams of Income Habit
Time is our most important resource and children have tons. It takes time to set up different income streams and for those streams to provide a meaningful income. Introducing children early to the idea of earning money not only from a job but also from other sources will help them achieve financial independence more quickly. Help them understand the difference between active income and passive income. Explain active income as money they earn from a job and passive income as money they earn while they sleep. Encourage children to earn income in different ways as early
as possible so it becomes their norm as they grow.

Some Ideas:

1. Jobs (not chores), completed at home. Draw up a contract and show them how to invoice. Start a business like washing cars, a lemonade stand or bundling firewood and pinecones.
2. Sell in the secondhand economy.
3. Inspire them to write an eBook or start a YouTube channel.
4. If their passion is art, help them create and sell NFT’s.
5. Teach them the investing habit.

The Investing Habit
The Investing Habit teaches children to take care of their future selves by investing half of all income earned. Children are blank slates when it comes to their financial habits and money mindset so there’s a good chance this wealth building habit could be their norm as adults.

How to Teach the Investing Habit:

1. Younger Children: Label six money jars with the words
   Genius, Goals, Get, Grow, Guard and Give. Put all their
   income into the Get jar and immediately take half out
   and put into their Grow jar.
2. Older Children: All income goes into a transaction
   account and half is immediately transferred into a
   separate savings account with no fees and high interest.
   This is money they are saving-to-invest. The next step is
   to invest it.

The Budgeting Habit
Explain a budget as a plan for their money. It’s a tool to help them make their dreams come true and live the life they want to live. With younger children, use the six money jars and introduce saving and spending envelopes. Take the remaining half of their income out of their Get jar (after ‘saving-to-invest’) and put it into their Guard jar. From their Guard jar, they decide how much they want to put into their spending envelope to spend now, and how much they want to put into their saving envelope to save up for a want. From their Guard jar, they can also choose how much they want to put in their Give jar. 

For older children, start giving them money to budget for specific items that are important to them. For example, if they love clothes or surfing, they need to begin budgeting for those items. It may not be helpful for them to budget for items like electricity or insurance as it has no real meaning for them yet.

Everyone starts at a different place on their journey to financial independence, but the goal, the lessons and the milestones along the way are the same.

Normalise financial independence. Talk about it as casually as you talk about their dreams of becoming a sports star, social media influencer, astronaut, YouTuber, fireman, author or singer. Ask questions like:

• What will you do when you are financially independent?
• How will you make a difference in the world when you are financially independent?
• What would you do if you had a million dollars?
• When you are financially independent, where will you live?