Your child’s introduction to economics is often a piggy bank. It’s an easy tool to teach them about our national currency and the concept of saving. At every stage of childhood and even into adulthood, parents can educate their kids to build lifelong financial skills. As your children grow into young adults, the piggy bank concept should evolve into sophisticated conversations about income, debt, saving, investing, family wealth, and estate planning.
Over the past 60 years, the personal savings rate in the US has fluctuated, depending on many factors, including unemployment rates, inflation, and interest rates. In 1970, the savings rate reached 12.9%, but in 2017, it was the lowest rate in recent history, a measly 2.4%.(1) With Baby Boomers currently retired or nearing retirement, younger generations have an added burden. How can you influence your children to make wise financial choices while navigating the ever-changing economic landscape? Here are a few suggestions for each stage:
1) Elementary School: Open a Savings account to stash birthday money. Allow your kids to make purchases to learn about the value of money. Make the connection between income and hard work. Rather than simply providing an “allowance,” try creating a chart with chores worth specific dollar amounts. This will instill the old adage, “money doesn’t grow on trees.” It’s also not too early to start thinking about charitable giving. Teaching your children to give to others is as important as teaching them to save.
2) Middle School: Delayed gratification and personal responsibility can be introduced at this age. Since many pre-teens want phones, electronics, and big ticket items, it’s a great time to teach goal-setting and disciplined saving over time. Your child may be doing more difficult chores including mowing lawns or babysitting. Share their bank account statements with them and help them budget for their desired purchases. Create consequences for not properly caring for their more expensive belongings.
3) High School: Help your teenager open a Checking account. Balancing a checkbook will help them learn to manage their spending and saving habits. Take the work/income relationship to the next level by encouraging part-time or summer jobs. If you provide them an “allowance,” connect it to specific family responsibilities/chores. Help them budget for needs versus wants. Set a monthly budget that can be used for anything – clothing, dining, and entertainment. If they can’t buy a new pair of jeans because they spent too much money at Starbucks, they will learn more complex budgeting skills.
4) College: By now, they should know about earned income, saving, and budgeting. Introducing debt and credit is natural at this stage. Living on their own, they may have student loans, rent, or utility payments to manage. They may now apply for credit cards, so be sure to educate them about the dangers of credit card debt. If they will be carrying student loans after college, explain interest rates, and required monthly payments to pay down debt.
5) Young Adulthood (mid to late 20s): The most advantageous time to begin saving for retirement is when full-time employment is attained. It can be easy for this age group to delay on long-term savings as they live in the “now.” Encourage them to save for their “future self” through a 401(k) or IRA. Education about taxes, good and bad debt, investment vehicles, and market risk can be the building blocks for their financial success.
6) 30s+: Your children are independent adults, but you can still offer wisdom. Suggest saving for their own children in the form of 529 college savings plans. Show them how you saved (or didn’t save enough) for your own retirement and encourage them to continue saving. This will also be the time to explore any future family debts, inheritance, and estate plans. A discussion of Wills and Trusts is a necessary conversation. Setting up a family meeting to introduce your children to your financial advisors can help to ensure that everyone is on the same page with regard to future plans.
At any age, you can be an active role model for your children to help them build financial wisdom and security.