Although you’ll have to wait a good while before they’ll thank you for it, teaching your children to be financially responsible is one of the best gifts you can give them. Of course, the earlier they start to learn about making wise money decisions, the fewer bad habits they’ll have to ultimately unlearn. The time truly flies while they’re growing up, so starting these lessons before they head off college (and are tempted by free money credit card offers) could start them off on the right foot and prevent them from falling into a cycle of debt when they’re on their own. Fortunately, most of the lessons can begin while they are still very young.
Lesson #1: Appreciation for the value of money — Money has to be earned — and when it is, they better appreciate its value. Those of us who had a job like babysitting or mowing lawns in the summertime might remember when a new video game was no longer just $50 of mom and dad’s money, but the equivalent to 10 hours of work. Perhaps you recall hesitating to purchase a soda for $1.50 and opting to visit the water fountain because you were saving your allowance from doing chores. Prices are just abstract numbers until time and effort has been spent to generate those coins and bills.
Consider forming an allowance-for-chores policy to teach your children about money management early on. You pay for the basics, but if they want the extras, they will have to save up and use their own money. It’s an important lesson on its own but will also help them focus their priorities and feel a sense of pride in accomplishment.
Lesson #2: Saving the money they earn — Teach them to save a portion of what they earn from the get-go. This habit will make it much easier for them to not spend their entire paycheck as well as leave their savings intact when they are on their own. You may need to encourage them firmly at first, with a fixed percentage or minimum amount. As they grow older and their savings increase, they will need less guidance as they come to appreciate the readiness of available funds for a special purchase.
Lesson #3: Setting goals and staying on track — Helping your child set short- and long-term goals is a key part of getting them to stick to a savings strategy. Most children are not that excited by slowly rising dollar amounts, but when a certain dollar amount represents a desperately desired new toy, their focus sharpens considerably. Make a chart to show them how much they would need to save over a specific amount of time to have enough for their goals…and make sure to reward them when they stay on track.
Lesson #4: The nitty-gritty of a balanced budget — Show your children the day-to-day workings of adult finances. Go through the line items on your budget (with real or simplified amounts) and reveal your own percentage of savings for short- and long-term goals. You can explain the benefits of autopay, managing a bank account online, minimum balances and fees, and even how to fill out a check (some landlords and city utilities still require checks for bill payment). It may seem mundane to you, but depending on the child’s age, the desire to be grown up could increase their interest level and make abstract concepts more understandable.
Lesson #5: Understanding debt and loans — When adults are first exposed to credit cards, they may not understand that purchasing things on credit or taking out a loan ends up costing more money. Explaining how interest can work for you (in a savings account) and against you (in a loan or on credit) can keep them from making bad decisions. Above all, modelling financial responsibility in your own life can help them form the basis for a lifetime of good money habits.
If your children have already headed off to college, this doesn’t mean you’ve missed your opportunity to impart some financial wisdom. In fact, you can even pull from a July 2018 Credit.com article which promised to give college grads some financial advice they may not have received along the way, including:
- Be as practical as possible with big-money purchases, even if it seems boring.
- Forget the year off to find yourself and get a job as soon as possible.
- Make a student loan repayment plan right now instead of using the six-month grace period (in which interest still builds up).
- Start saving for a rainy-day fund (and for retirement) immediately.
- Be very careful with credit cards and avoid carrying a balance.
- When you get the job, sign up for the retirement plan right away and contribute enough to get your full company match…or better yet, max out your annual $19,500 contribution limit if possible.
- Use the compounding interest available through investments to your advantage and the earlier you start, the better.
Representative is registered with and offers only securities and advisory services through PlanMember Securities Corporation, a registered broker/dealer, investment advisor and member FINRA/SIPC. 6187 Carpinteria Avenue, Carpinteria CA. 93013, 800-874-6910. Randall Wealth Management Group and PlanMember Securities Corporation are independently owned and operated. PSEC is not responsible or liable for ancillary products or services offered by Randall Wealth Management Group or this representative. CA Insurance License: #0I08678.
This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.