By Mary Ashton Mills
If you have children, especially teenage children, you are most likely all too familiar with feeling like you are constantly shelling out dollar bills. Is your wallet routinely cleaned out? Have they given you that look as if to say, “Come on Mom or Dad, you have plenty of money. ” If only we all had a well-fertilized money tree!
Teaching children the value of a dollar in today’s world is an important lesson. By educating children about the correlation between hard work and financial rewards, children can then learn the value of saving some of their hard-earned money to live a responsible financial life as a college student and young adult.
Running out of money while still living at home is much better than the alternative. Imagine your child on the side of the road while away at college with an empty gas tank, nobody to call and an overdrawn checking account. There is no safer place to fail than at home under mom and dad’s roof. By experiencing financial ups and downs while still living at home, children will learn to spend their money on what’s important, limit frivolous purchases and begin to see the importance of saving.
ALLOWANCES/COMPENSATION FOR JOBS AT HOME
According to Steve Marbert, certified financial planner with Richard Young Associates Ltd., offering children the opportunity to earn as much money as they want within limits is a great way to start. “Rather than giving kids money without any obligation to work, I believe we should teach them the association between working and earning money. Allowance gives them an entitlement mentality, while working gives them pride in their accomplishments to earn money. It also creates an appreciation for the value behind the money they earn,” says Marbert. He suggests keeping a list of routine tasks that are age and ability appropriate for your child with a dollar value associated with each task.
Keep a piggy bank visible in your child’s room from an early age. Encourage the act of depositing coins and dollars into the piggy bank. Marbert suggests discussing an amount your child will allocate toward saving, spending and giving. Talk to your child and explain that you save a certain amount each month for savings. It may seem more time consuming at first, but once your child gets in the mindset of dividing their money, it will become routine.
DEBIT AND CREDIT CARDS
If you think your child is mature enough to manage some monthly expenses on their own, ask them to make a personal budget. By listing their expenses and their personal income such as money from allowances, odd jobs or part time jobs, you’ll know exactly how much they need and you can open a personal checking account or deposit money onto a prepaid debit card that can be loaded each month. Marbert recommends introducing this in high school since they will most likely have a debit card if they go off to college.
Marbert does not recommend establishing a credit card for a child or young adult. He references the “playing with a loaded gun” analogy here and reminds us that credit can be an important tool if used correctly, but very dangerous if handled carelessly. With temptations prevalent, the credit card is easy to use one too many times without realizing the repercussions. “I would suggest avoiding credit until they leave school and get a full-time job. There is plenty of time to build credit once they get out of school,” he says.
MOCK STOCK PORTFOLIO
Have your children research a stock that peeks their interest. From Go Pro or Apple to Campbell’s Soup and Coca Cola, there are stocks to interest everyone. Get them involved. Give them chance to buy a share from you (even if you use monopoly money or a fake spreadsheet) and track the stock daily. Keep record of the gains and losses. Discourage them from selling the stock too early. By watching it over time, they will appreciate the meaning of investing in the stock market.
Marbert does not recommend a loan of any kind for a young person aside from student loans and even then they should be a last resort. “One of the major keys to getting started on the right foot and succeeding in your financial life is avoiding and limiting debt,” says Marbert. He warns that a young person should not take out a loan for anything other than a house or college. “Cars should be saved for ahead of time and purchased with cash.” He gives a powerful example. “Buying a new car on credit every five years can cost over $200,000 in lost savings by the time you are 60, compared to paying cash and saving money ahead of time.”
LEARN THE MAGNITUDE OF COMPOUNDING EARLY
Marbert insists that kids learn the power of compounding returns and time. “We need to explain to children that this can work for them if they save or against them if they build debt,” says Marbert. He explains how contributing a certain amount each month can really be beneficial in the long run. “For instance, if they get their first job out of college and save $400 per month in an account for a car, then they would have $30,000 in just five years if it makes eight percent invested in the stock market.” He also recommends a ROTH IRA. A fully funded ROTH IRA at $5,500 per year would have over a million dollars tax-free in 35 years at the same eight percent return.
Marbert encourages teenagers and parents to consider investing in self-study program like Dave Ramsey’s “Smart Money Smart Kids” program. Richard Young and Associates sponsored the Dave Ramsey Foundations program for a local high school for five years and found it was extremely beneficial. These programs can be studied at home or with a group to help kids learn to be savvy savers.
Mary Ashton Mills lives in Augusta with her husband and two children. Her work has appeared in Charleston Magazine, The Post and Courier and Augusta Family Magazine.
This article appears in the September 2016 issue of Augusta Family Magazine.
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