Being a parent is a huge responsibility. You have a laundry list of things you want to impart to your children before they become adults. You want them to say please and thank you, help those who need it, get a good education, and become productive and happy adults. In addition to all this, another responsibility parents have is to teach children how to handle money well.
When it comes to financial literacy, it’s critical to start early by teaching young children to become early savers. It is equally important to follow through during their teenage years, into college and young adulthood. Here are five ways to raise financially responsible young adults.
Set a good example.
Step one is to follow your own advice and set a good example for your children. Parents should set priorities for how to use money and be mindful of where the dollars are spent. Help your children understand how spending on little things, like a takeout dinner on Friday night, might affect the family’s ability to buy a new car or take a big vacation.
Make children responsible for their own expenses.
Parents frequently pay for things teenage children want – a cell phone, sports, going to movies with friends, or a new wardrobe. One idea is to give your children an allowance to cover these on-going expenses, then allow them to make choices about how to use the money. Foregoing a movie or two, for example, might mean they are able to devote more money to buying the jacket they want.
It might seem silly to give your teenager money, only to have them turnaround and give it back to you to cover the cell phone bill. But, when the child sees the value of what money can buy, they might be less likely to lose their phone. Extend this teaching into their college years, too. Make them responsible for some or all of the expenses that come with living out of the house and pursuing further education.
Teach them about credit.
One of the most impactful things you can do for your young adult children is teach them about credit. It’s amazing how easy it is to get a credit card today. Students in college, with no real income, think nothing of carrying an $8,000 credit card balance. The interest they will pay for an unpaid balance continues to compound, piling debt on top of debt. With interest, suddenly a $100 sundress or gaming accessories can cost $350 by the time it’s paid it off.
It’s shocking to think that most people couldn’t handle an unexpected emergency expense of $1,000. Emphasize to young adult children that part of being an adult is being prepared for the unexpected problems that happen in life. An emergency savings fund can help cushion these bumps and blows.
I think it’s also essential to talk about the importance of insurance – not just life insurance but also auto, home, renter, and even disability and umbrella — and how it can protect them and their loved ones against disaster. Talk to them about the protection you have in place, and why you made the choices you did.
Be mindful about money.
I work with clients of all income levels. Sometimes, those who earn less during their working lives are actually much better off in retirement than those who made more. Earning less has forced them to pay attention to how they use their money and where it goes.
Handling money is an important part of being an adult. With a little bit of effort, you can raise strong, financially responsible kids. Try to have open conversations with your kids while also acting the part. Teenagers and young adults learn just as much (if not more) from a good example as they do from good advice. If you’re going to teach good financial fitness, you need to live it as well.
This post is for informational purposes only and should not be considered as specific financial, legal or tax advice. Depending on your individual circumstances, the strategies discussed in this presentation may not be appropriate for your situation. The information in this material is not intended as tax or legal advice. Always consult your legal or tax professionals for specific information regarding your individual situation.