Are the young people in your life financially literate? By helping them learn about money, you give them an important head start on important life skills like developing good savings behavior, living within their means, and avoiding many common financial pitfalls.
Unfortunately, many young Americans are not learning the right financial lessons. Research shows that 46 percent of teens don’t know how to create a budget and 55 percent would like to know more about managing money.
Here are some recommendations for helping kids develop the right financial behaviors:
Start Early: Teach young kids that we have to save for the things we want by helping them choose a toy and then saving to buy it. Use an allowance to teach budgeting skills and incentivize chores for older children.
Set financial expectations and be honest about money. Until kids start earning a living and being responsible for their own expenses, it’s easy for them to believe that money grows on trees. Involve kids in everyday shopping decisions so that they understand your thought process behind common financial decisions and learn your values about money. Depending on their age level and maturity, you can also ask for their input when making financial choices. Give them a budget for back-to-school shopping and help them prioritize their spending so that they learn about living within their means.
Expect kids to contribute to their financial future. If your kids have an allowance or receive money on birthdays or holidays, require them to set aside a certain amount for the future.
We recommend using the three-bucket approach: one third of every dollar goes to long-term savings, one third goes to charity, and one third is pocket money. Long-term savings can be used toward education expenses or to pay for a major purchase like a car. This way, you help them establish critical saving while teaching them about your values.
Teach kids about debt. It’s very easy for young adults to get in over their heads with credit card debt or student loans. Teach your kids how debt works so that they can evaluate offers and avoid predatory lending. If possible, help your kids establish their credit through a secured credit card or low-limit card that they must pay off each month so that they learn how to manage debt responsibly. FBN
Keith Todhunter Schaafsma, MBA, Certified Financial Planner, is the senior investment adviser at Ascendant Financial Solutions. She has been creating peace for her clients from financial chaos for over 20 years. She and her husband, Pieter, an artist, love to travel and enjoy the wide open spaces of the Southwest with their two cherished dogs.
Securities and Advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC. Advisory Services offered through Ascendant Financial Solutions, Inc.