The 6 Most Essential Money Tools for Kids

Ever notice how politicians, generals and Wall Street are always fighting the last war -- not the one that's coming? It's why the stop sign goes up at a dangerous intersection after a bad accident; why we spend billions developing weapons that have little value against terrorists in the desert; and why financial experts have so much trouble buying low and selling high.

We can't see around corners. So we base our judgment on history and extrapolate current trends to infinity. But this approach seldom works for long. Things change too fast. Take the almost comical deflation-inflation-deflation whipsaw on Wall Street.

The pendulum has reversed yet again. Wall Street's leading lights are selling the same government bonds they were buying just three months ago, and which they had been selling just three months before that. Among the prominent fund companies now reportedly assigning greater likelihood to inflation (which is why they are selling bonds) are Pimco and Dodge & Cox.

Let the pros play this ridiculous game of cat and mouse. They aren't especially good at it but at least they can afford the transaction costs. As you look at your own money habits, and to shape the way your kids handle money, remember that simple is best and no one knows the future. Here are six all-age, all-weather Bank of Dad strategies to practice and preach:

· Live below your means. Talk about simple. Spend less than you make. You'll need a budget; a firm grip on your income and fixed expenses -- and the fortitude to avoid consumer debt.

· Start saving early. Because of the magic of compound growth, the money you save and invest by age 25 is worth 15 times more than the money you save at age 65.

· Pay yourself first. Every time you receive income set aside 10% for long-term savings. Plan your budget based on what is left.
· Understand need versus want. You need a car; you do not need a Lexus. Your teen needs a cell phone; she does not need regular upgrades and hundreds of apps.

· Be skeptical. Whenever you spend money the person you pay is only interested in what they will get out of the deal. They are not there to protect you. Read the terms.

· Always be diversified. Economic shifts occur often and abruptly. If you could see them coming you'd be rich already. Stay broadly diversified among stocks, bonds, commodities, cash and real estate; among large and small companies in many industries; and both developing and emerging economies.

Do all that and I guarantee you'll never have to worry when Bill Gross says he's worried about inflation; no wait, deflation; shoot, I meant to say inflation all along!

If you have a question about kids and money, I'll get the answer. Email me at dankadlec@dankadlec.com.

Photo courtesy Flickr user MikeWu

Dan Kadlec

Daniel J. Kadlec is an author and journalist whose work appears regularly in Time and Money magazines. He is the former editor of Time’s Generations section, which was written and edited for boomers. Kadlec came to Time from USA Today, where he was the creator and author of the daily column Street Talk, which anchored the newspaper's business coverage. He has co-written three books, including, most recently, With Purpose: Going from Success to Significance in Work and Life. He has won a New York Press Club award and a National Headliner Award for columns on the economy and investing.

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