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Warren Buffett offers these important financial lessons for kids

Warren Buffett offers these important financial lessons for kids

On the third floor of Warrant Buffett’s Omaha home was a dime slot machine, auspiciously placed to attract the attention of his three children.

“I could then give (them) any allowance they wanted, as long as it was in dimes, and I’d have it all back by nightfall,” he remarked at one Berkshire Hathaway annual general meeting. “I wanted to teach them a good lesson. My slot machine had a terrible payout ratio, by the way.”

While Buffett’s aversion to gambling is well documented – he’s famously called it a “a tax on ignorance” – the Oracle of Omaha’s dime slot machine lesson on the foolishness of gambling also speaks to the role of allowances in building young people’s financial literacy.

It’s an issue the notoriously vocal Buffett has been outspoken about over the years. He even lent his voice to The Secret Millionaires Club, an animated series where he mentored a group of entrepreneurial teens (and their robot sidekick) as they moved through different financial scenarios.

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Start early

“I think parents need to start teaching kids about the importance of managing money at an early age,” says Buffett. “Sometimes parents wait until their kids are in their teens before they start talking about managing money when they could be starting when their kids are in preschool.”

And as his dime slot machine illustrates, the importance of managing money comes with another critical lesson – the importance of failure. Buffett wasn’t afraid to use a little tough love to show his kids the loses that can come from poor investments.

No handouts

Whether that’s giving them money to learn how not to use it or avoiding breeding a sense of entitlement by not giving them handouts, the billionaire is full of soundbites about teaching kids how to stand on their own feet.

In the 1980s he told Fortune that setting up his kids with ”a lifetime supply of food stamps just because they came out of the right womb” is anti-social and harmful. To Buffett, the perfect amount to give them was enough so “that they would feel they could do anything, but not so much that they could do nothing.”

He had a change in heart and in 2006, he doled out a billion dollars to foundations in each of his three children’s names. Today, Buffett’s grown children – Susie, Howard and Peter – are among the world’s most powerful philanthropists.

Learn to fail

But they didn’t get there by being insulated from life’s money mistakes; they did it without a sense of entitlement, through their own discovery and with a little help from Buffett’s third floor slot machine.

Reflecting on those lessons and his children’s philanthropy, Buffett told the Atlantic that he always encouraged his kids not to fear failure.

“I’ve told them that unless they had failures, they were failures,” he said.