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Raising Money-Smart Kids: 10 Steps to a Financial Education

| March 28, 2019
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Teaching your children to be financially responsible is one of life’s critical lessons. As your children mature, you will have many opportunities to teach them about good financial management, from kindergarten to adulthood. However, life is busy and our children's financial education may not always be at the top of our to-do lists. Here are 10 easy ways to put your kids on the path to financial success.

Early Years

1. Shop with your kids.

Show them how to compare items for price and value. Look at the cost of every-day groceries, such as milk, eggs, bread, or macaroni and cheese, or compare the cost of toys.

2. Give an allowance.

Giving children an allowance can provide an important first step towards financial responsibility. When should you begin giving an allowance? Should there be any strings attached? It’s an individual decision. As for when to begin giving an allowance, it’s generally recommended once children are in school.

Having an allowance gives kids a sense of ownership over their money. The allowance becomes money a child has to decide what to with - should they spend it on a new toy? Should they save it? How many weeks of allowance will it cost to buy that thing you really, really want? These questions are the foundation of personal finance.

Middle Years

3. Matching contributions.

You can give your children an incentive to save by matching what they save. For example, in addition to giving them their allowance, at the end of the year, match the amount they’ve accrued throughout the year.

4. Budgeting.

As your children begin to understand more about money and decision-making, take them through your monthly budget to show them where the money goes and to demonstrate responsible decision-making.

5. Tell stories.

Share real anecdotes from your life about good and bad money management to convey your monetary values. For example, you could share with them the worst financial mistake you ever made and how you learned from that experience. Or tell them of famous athletes or other celebrities who spent everything they made and then were left with nothing.

Teenagers

6. Teach teenagers how to invest.

Discuss the basics with them and consider opening an investment account for them. Or if opening an account isn't an option, go over your quarterly 401k or IRA statements together. Encourage your kids to ask questions, and if you don't know the answer, reach out to your financial advisor. Many advisors, including myself, are happy to chat with their clients' children and answer investing questions.

7. Open a college savings account for your child and contribute to it.

Periodically, check the balance with the child, who can watch the money grow. Similarly, once they start working, provide a kick-start to their retirement savings by opening up and making an initial contribution to a Roth IRA.

8. A Good Credit Score.

Work with your older teenagers to help them establish a good credit score. Have your kids research credit cards and apply for one with them, or list them as a joint account holder on your existing credit card. When you add your child to your credit card, they will be issued a card with their name on it, but you will still be able to monitor it closely. Then, when they are ready to have a card on their own, make sure you encourage them to charge a small amount and to always pay it off each month.

In General

9. Be a role model of responsible money management.

Paying off all your bills on time and staying out of financial trouble could set the right tone for the next generation.

10. Teach your children the value of a good education.

Talk to them about—and show them how— education pays off over the long term. Did you know that a college graduate earns an average of $25,717 more annually than a high school graduate or $1 million over a 40-year career? The gap doubles for those with an advanced degree.1 Also have frank discussions on the cost of student debt, and whether a traditional four-year college education is the best option for them.

Financial Education Starts at Home

At Personal Financial Strategies we encourage clients to bring their children or other beneficiaries to annual account reviews. Financial literacy starts with participating in real finance discussions. Whether your children are adults saving for their own retirements, or still in elementary school, conversations about money that are open and honest can have a lasting positive impact.

Personal Financial Strategies is an independent financial planning firm in Hampton, New Hampshire. Anne Murraya registered representative with LPL Financial, has been helping New England families plan and save for retirement for over 18 years.

If you are interested in discussing your financial goals with Anneplease reach out to the Personal Financial Strategies team who would be happy to schedule a complimentary consultation.

1 Source: http://www.census.gov/Press-Release/www/releases/archives/education/011196.html. More recent data may alter this assessment.

Important Disclosures

Securities offered through LPL Financial, Member FINRA/SIPC.

This material is for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

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