Teaching your kids and grandkids about money
Whether your kids or grandkids are 4, 14, or 24, teaching them about money is one of the most important gifts you can give them. Good money skills last a lifetime. Budgeting, prioritizing savings, living within your means, long-term investing, are all skills that we can teach. Obviously, the application of these skills will differ based on the child’s age, but it is best to start when they are young.
If we teach them our values and principles about money today, they will be well positioned to succeed in the future.
Younger kids tend to live in the moment, with little consideration of the future. Encourage them to save a portion of each cash gift with an eye on the future. Show them how a savings plan can help them obtain a more expensive or treasured item in the future.
For teenagers with a job, help them understand their paycheck. Explain FICA (Federal Insurance Contributions Act is a United States federal payroll contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers). To help them get started with savings, offer to make a matching Roth contribution if they are willing to save some of their hard earned pay.
If you thought it was challenging explaining good money habits to teenagers, just wait until they are in college and have everything figured out. They will be out on their own for the first time with little money and lots of spending opportunities. College students are flooded with credit card solicitations. Credit cards can be useful in an emergency or to help build a credit history, but they can easily lead to overspending. This is a good time to discuss credit cards and avoiding high interest debt.
As your young adult starts their career, make sure they prioritize savings from the start. Encourage the establishment of an emergency fund and contributions to a retirement account. Their lifestyle will adjust to their take home pay. As bonuses and pay increase, so should their commitment to savings. Show them how slow and steady savings grows over 40 years.. According to Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
What should we tell them about investing?… focus on the long-term, stay invested through all market cycles, and own a low-cost diversified portfolio.
We frequently field questions about this topic and have many resources to share. If this involves an adult family member, please feel free to make an introduction to us. If you would like additional advice and guidance, please reach out, we are here to help.