Are you teaching your kids the value of a dollar? 415 Group Partner Raymond Maynard, CPA, shares several strategies for raising children to be financially independent.
If you have children (or grandchildren) you have an opportunity to give them a jump-start on their journey to becoming financially responsible adults. While teaching your child about money and finances is easier when you start early, it's never too late to impart your wisdom. Here are some age-relevant suggestions to help develop a financially savvy young adult:
- Preschool – Start by using bills and coins to teach them what the value of each is worth. Even if you don't get into the exact values, explain that a quarter is worth more than a dime and a dollar is worth more than a quarter. From there, explain that buying things at the store comes down to a choice based on how much money you have (you can't buy every toy you see!). Also, get them a piggy bank to start saving coins and small bills.
- Grade school – Consider starting an allowance and developing a simple spending plan. Teach them how to read price tags and do comparison-shopping. Open a savings account to replace the piggy bank and teach them about interest and the importance of regular saving. Have them participate in family financial discussions about major purchases, vacations and other simple money decisions.
- Middle school – Start connecting work with earning money. Start simple with babysitting, mowing lawns or walking dogs. Open a checking account and transition the simple spending plan into a budget to save funds to make larger purchases. If you have not already done so, it is a good time to introduce the importance of donating money to church or charity.
- High school – Explain the job application and interview process. Work with them to get a part-time job to start building work experience. Add additional expense responsibility by transferring direct responsibility for things like gas, lunches and expenses for going out with friends. Introduce investing by explaining stocks, mutual funds, CDs and IRAs. Talk about financial mistakes and how to deal with them when they happen — try to use some of your real-life examples. If college is the goal after high school, include them in the financial planning decisions.
- College – Teach them about borrowing money and all its future implications. Explain how credit cards can be a good companion to a budget, but warn of the dangers of mismanagement or not paying the bill in full each month. Discuss the importance of their credit score and how it affects future plans like buying a house. Talk about retirement savings and the importance of building their retirement account.
Knowing about money — how to earn it, use it, invest it and share it — is a valuable life skill. Simply talking with your children about its importance is often not enough. Find simple, age specific ways to build their financial IQ. A financially savvy child will hopefully lead to a financially wise adult.
I have four kids, two sets of twins. The older two are going to be twelve and the younger two just turned seven. When I read this article, I asked myself, ‘Am I doing the right things for my children? What could I be doing differently?’
I’ve tried several of the ideas mentioned here. A piggy bank is an essential start for younger kids, before opening a savings accounts. With my older two, I actually took them to the bank, and we toured the vault. That reinforced the concept of depositing money. I’d also recommend offering an allowance for chores. A good rule of thumb is that their allowance should be one dollar per year of their age. So, a seven-year-old would receive seven dollars per month.
Monopoly is also a great teaching tool to help them understand financial concepts in the real world, like mortgages, rent and taxes. My kids have grown to love that game, it’s become a fun family tradition for us.
The biggest mistake I see parents make is not talking to their children at all about money or finances. Money just magically shows up, and the children have no concept of what it takes to earn money, make a budget and prioritize their spending.
Teaching your children these concepts at a young age will go a long way later in life. At 415 Group, we can help you secure your financial future for the next generation, whether it’s through college planning, estate taxes or business succession planning. Contact your financial advisor to get started.