Last month I talked about what lessons it is important to be teaching your kids about money. I mentioned that I would go into more specifics about teaching teens about money in a later blog. Well, I figured I might as well go on to it sooner rather than later, so here we go. Those lessons taught throughout childhood should be continued to be reinforced throughout their teen years of course, but now you must get even more specific about actually preparing them for living their lives as financially independent adults. By teen years they should: Be paying for as much of their own needs as possible. This includes their clothes, phones, entertainment, car expenses, etc. Even if you are giving them an allowance to cover some of it, the money should be “theirs” to budget for all these expenses. This will set them up for learning to budget their living expenses when they are out on their own. Be saving for their future needs. They should have been saving for bigger “wants” throughout their childhood. Now they have some needs to be saving for. The biggest and most obvious is that first car. Encourage them to save for it. Even if you help them out, by giving them some cash “gifts” along the way to add to the savings or offering to match their savings (to let’s say equal to the amount that have saved), it should still feel like something that they have saved up and paid their own money for. This way they will learn to save for their bigger purchases throughout their lives. When my own children bought their first cars this way, I went one step further and had them set up an online bank account and pretend that they had bought the car “on payments”. But instead of paying the car payments to the bank they set up automatic payments going into their own (online) “car account”. This way they were ready to pay cash when they needed to buy their next car and would never need a car loan (or pay interest payments). For more on this see No Loan Auto Ownership Be advised to go to college with no (or as little as possible) student loans. Make sure they know that where they went to college will not make a whit of difference years down the line, but those student loans (if they choose to take them) will still be with them for a long time to come. They can attend community college for the first two years. Unless they get a great scholarship, they should attend a state school. For more tips on how to save money on college see: Smart-financial-planning for College Be taught the dangers of credit cards and debt. When your child is nearing the age of 18 they will be starting to receive credit card “offers” in the mail. Teach them to steer clear of these. Talk to them about how easy it is to go into debt. Teach them to only spend the money that they already have. Do not be spending “future money” that has not even been earned yet. Many kids get credit cards in college with disastrous results. They end up graduating with not only student loans hanging over their heads, but also start out their independent lives with credit card debts already weighing them down. Let them use a debit card for their expenses in college. Caution them to keep track of how much is in the account at all times. )Know about credit scores. No one should be taking out a credit card until they have a very full and mature grasp on managing their money and budgeting wisely to pay their expenses and also saving for the future. Only once this is happening should they open a credit card in order to obtain a good credit score. It is possible to live without a credit card at all but unfortunately not having a (good!) credit score can make life difficult at times as it is looked at by prospective employees, landlords, car rentals, and of course, eventually, mortgage bankers. But it should be used only for the purpose of obtaining that good score. To achieve this, teach your offspring to open one credit card and use it for one thing (one bill, or only groceries, or gas, or whatever). Always pay it in full and on time every month. Never carry a balance on it. And never use it for anything else, especially something that they can’t afford. Save up for things and pay cash with money that they already have. This is one of the most important concepts you can teach them. Know about the virtues of compound interest. And why it is so important to start investing early. Teach them that if they invest early and let the money grow they will have to invest far less of their own money to achieve the same nest egg of someone who started later. The magic of compounding interest will do the growth for them. Know how important it is to always live below their means. Which if you think about it is exactly what they will be doing if you have successfully taught them all of the above lessons. Know how to feed themselves frugally. Teach them to cook. Show them how much cheaper it is to buy your own inexpensive ingredients than it is to eat at restaurants or get take-out. For a primer on frugal grocery shopping see Money Saving Tips from Your Auntie Victoria When you send your newly minted adults out into the world armed with this important knowledge, you (and they) can be assured that they will not become a part of the hapless statistics on adults living in debt and with no financial safety net beneath them. They will have a strong financial foundation from the very start. And your work is done. Wishing you and your children the brightest future you can have!
2 Comments
It’s appalling how many adults in today’s world have little if no knowledge of personal finance skills. They are just going through life flying by the seat of their pants when it comes to how to handle their money and finances, often, unfortunately with disastrous results. This is clearly evident when you hear the statistics for the amount of personal debt in our country. And so very often these people will say that they had absolutely no guidance from their own parents on the subject. That money was not discussed in their households when growing up. That it was often viewed as a source of tension as they witnessed their parents fighting about it. Money should not be a taboo subject when it comes to raising kids. And it certainly should not be a source of anxiety and despair. It is simply a tool/resource that if managed well can bring much joy and security to one’s life. The key here, of course is in managing it well. And this is (obviously) not an innate skill that we are just born with, but (especially in today’s consumeristic, ad driven, and complex society) needs to be taught. I have argued many a time that more needs to be done on this at the high school level with courses on personal finance and financial literacy skills. But the education can and should begin much earlier than that from a very young age. Money is a part of life, and lessons on what is all about and how to manage it can be incorporated into everyday life from the time a youngster can talk. It is imperative that they begin on their journey with the skills and knowledge to be financially successful adults. Here are some of the lessons that should be imparted on youngsters before they leave the nest to embark on their own exciting independent lives. #1. Money comes from work – Kids can see you going to the ATM and taking out bills. They watch you whip out your credit card to make purchases. It is all pretty magical. It is important that they realize that you actually earned all this money you are spending to get stuff. It cannot be apparent to them unless you tell them. In their own little world, you can begin to let them earn their own spending money to further understand the concept. Some parents tie their chores to their allowance. Others feel chores should be done as a member of the household without pay. But you should provide something (extra chores?) that they can be doing to earn their own spending money. As they get up into their teen years, they can begin to earn money outside the home by babysitting, dog walking, yard work, etc. And in later teen years, with an hourly wage job. #2. Money should be saved – Most kids first impulse is to want to go out and spend those shiny new quarters and crisp dollar bills they now have in their hot little hands. Heck, there are many adults who have that impulse. That is why saving needs to be taught. Help them to set up goals. If they have their eye on something that costs more than one week’s allowance, help them to set up a savings plan to pay for it. Of course, this will start very simply when they are tiny, saving up 2 or 3 weeks of allowance, and escalate to bigger spending goals as they grow #3. Money needs to be budgeted – They will not be either spending all their allowance or saving all their money. Help them to see that they can spend a portion of it on todays wants while still saving a portion of it aside for future goals. This is the beginning of budgeting. By the time they are older teens they should be responsible for as much of their own wants and needs as possible, such as clothes, phones, entertainment, car expenses, etc. This money can come from an allowance or (preferably at least some of it) from work outside the home. Help them to figure out how to organize their money to pay for these things and to also be saving for future needs (a car, college expenses, an apartment, etc.) #4. Learn the difference between wants and needs – Kids can be impulsive (again, ditto some adults). It is up to you to show them the difference between frivolous spending and real needs. They need to be taught to really think about purchases rather than just thoughtlessly throwing money away. Use examples in your own life. Let them in on your own thought processes when weighing a purchase #5. Teach them about advertising. I heard a statistic once that in today’s world we are bombarded with something like 2,000 ads a day! Children do not even know that these ads are trying to sell them something. Talk to them about that. Discuss with them how to be a savvy consumer. Teach them to be strong against the lure of very convincing and attractive advertising. Tell them that if they buy brand names vs generic they are paying for the advertising. #6. Teach them that stuff does not equal happiness. Show them by example how it is possible to lead a very comfortable and happy life without a lot of stuff accumulation. Here is an opportunity to show them just how joyous a frugal life can be. Talk to them about peer pressure and the concept of “keeping up with the Jones’s”. When your kids are much older, before they go out into the world for good (college aged), it will also be important to tackle some more adult topics with them, such as credit cards and debt, credit ratings, saving and investing, emergency funds, and even eventually mortgages and saving for retirement. I will cover all this in a later blog All the best to you and especially to your kids for learning to create a bright financial future!
|
Archives
June 2022
Categories
All
|