The year is flying by. Tax day is officially behind us, and soon we will be heading off to summer vacation. For some, a high school or college graduation is looming. Of course, the big question on every graduate’s mind is, “What am I going to do now?” While it is not necessary to wait for these milestones to start the conversation, they give parents an opportunity to talk to their children and grandchildren about smart money management and what it means to be financially independent.
There are many opportunities for children to earn their independence. Financial independence should be a part of this education process. It should start early and continue throughout their adolescence. By the time children get their first job or head off to college, they should know how to budget, save money and spend wisely. As an influencer, you will help with this education and foster good habits at an early age. Ultimately, providing this direction will benefit your children throughout their entire lives. Among the things you can do to educate and encourage good habits is to encourage your children to:
- Get a part-time job – A part-time job is a great way to establish work ethic and to teach your children the value of a dollar. Whether it’s baby-sitting, retail, or restaurants, when a teenager works to earn money, they gain an appreciation for the value of a dollar and the impact of taxes!
- Split the bill – If your children are earning money, take it one step further and make them accountable for some of their own bills. That cell phone can be expensive, and lunch money adds up. By making them responsible for a fraction of their day-to-day expenses, you can teach them how to establish a budget early on, and they may not even realize it’s happening.
- Establish credit and use it wisely – Have a candid discussion about credit and debt. Teaching the fundamentals of credit early can be priceless when your children start receiving all of those credit card applications in college. You cannot become financially independent by living above your means. Children should learn this rule early in order to prevent incurring excessive amounts of debt.
- Save early – It is never too early to start saving. In fact, the earlier the better. You can introduce your children to the stock market and what it means to invest in very basic terms. They will get a kick out of seeing their account balance go up and will learn there can be risk when balances decline. When they get that first “real job”, make sure they contribute to the company 401(k) as soon as they are eligible, even at small percentages. Those small amounts add up over time and can have a huge impact in the long run. Many companies offer a match up to a certain percentage of contribution – free money is always a good thing!
- Get creative – Create a “matching program” to incentivize savings. Match their savings dollar for dollar or up to a certain dollar amount, and help to begin saving for their future. Consider funding or helping them fund a Roth IRA for earned income. This tax free growth is impactful over time.
- Set goals – Goal setting – in life and in finances – is a great lesson for any child. Help them to establish tangible goals, whether it is saving for college or a new smartphone. By creating a plan to help them meet their goal, you help them prioritize needs and wants while teaching them how to live within their means.
Talk to your children about finances – don’t let it be a taboo topic. You can be role models for their fiscal responsibility. As Family CFOs, we help our clients start this conversation. If you are unsure how to start the conversation, talk to your financial professional about ways to increase your family’s financial IQ.
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