Back to School: Are Your Kids Educated About Money?
By Todd Youngdahl, CFP®
If you have kids, you know how quickly time goes by! One minute they are a sweet baby in your arms, the next they are packing for college. As a parent, you want to make sure they are equipped for the big, bad world and have every tool and skill they need to succeed in life. Financially, you hope they attain financial security and have the confidence to make informed decisions when it comes to their money.
One of the most challenging parts of parenthood is that we have to let our kids make their own choices. Sometimes they will make mistakes and sometimes they will succeed. They have to learn on their own, but we can teach them sound financial principles and model wise practices. Here are four principles to pass on to your kids that will give them a head start on some positive personal finance habits:
1. Use A Budget
This is arguably the most important thing you can teach your kids to show them the value of money. And don’t think you have to wait until they have a regular job to take this step - as soon as your children start receiving money through allowances or birthday cash, they can learn how to allocate their money. Once they get older, they can take on some of their own expenses which will help them understand how to make their money last, distinguish between needs and wants, and learn the consequences of spending unwisely.
As your children get older and prepare for high school graduation, you can work with them to estimate monthly expenses, income streams, and periodically review their spending. Help them take ownership of the budgeting process by letting them make their own choices and then looking back to evaluate what worked and what didn’t.
2. Save Early And Often
Just because your child doesn’t have a large chunk of change coming in on a regular basis doesn’t mean they can’t start saving early and often. Whether it’s saving for a new toy or putting cash aside for a car, your kids will begin to understand the importance of having a long-term perspective and setting goals. They will also experience the satisfaction of watching their bank balance grow and appreciate the sacrifice required to obtain what they want.
Just about any financial professional will tell you that it’s never too early to start saving for retirement. You might think that your child doesn’t have enough money to contribute to a Roth IRA, but $25 a month is still $25 more than $0. Every little bit makes a difference down the road, especially when you factor in compound interest. This is a great time for your child to take advantage of having few expenses or financial responsibilities by saving for their future.
3. Avoid Debt
In a society that relies on credit cards to not only pay the bills but also buy whatever one desires, many kids grow up thinking that money grows on trees. If they only see you pay for things with your credit card or they never have to work for something, they will assume that the money will always be there. You don’t want your child to start their college or working years in debt.
Be proactive by cosigning on a credit card with them with a low credit limit. Let them use it for purchases already planned out in their budget and pay it off in full every month. It’s better for them to learn the dangers of credit cards with you walking beside them.
When it comes to paying for school, loans are not always the answer. They don’t need to go into debt to pay for every aspect of the college experience, from tuition and room and board to living expenses. They can speak to their school advisors about scholarships, work part-time through college, or choose to attend a public, in-state school.
4. Credit Can Be Your Friend
Credit cards and loans aren’t always evil. Used wisely, they can be an incredible tool to help your child build credit history that will help them down the road. Credit building is a slow and gradual process so it is a fantastic opportunity to reiterate the long-term nature of financial success.
5. Partner With A Professional
You want your child to have a secure financial future, but helping them achieve that goal starts now, regardless of their age. These personal finance principles will help your child learn self-control, spend intentionally, and experience the satisfaction of working hard and making short-term sacrifices for long-term gain.
The more financial knowledge your kids have, the better equipped they’ll be to start off on the right financial foot once they graduate college and enter the adult world. At Washington Wealth, we want to partner with you to set your kids up for success. We frequently hold Day Off School camps, offering fun financial education opportunities for kids. Stay tuned for more info on our upcoming events! If you feel that you could use some setting a solid financial example for your children, schedule a meeting with us today!
About Washington Wealth Advisors
Washington Wealth Advisors is an independent registered investment advisory firm serving high net worth families and small businesses. We focus on holistic financial planning and comprehensive investment management. Leveraging our core strengths of unbiased, active investment management together with a detailed annual financial planning capability, we serve your comprehensive investment and financial planning needs.