Financial education is, unfortunately, not as prevalent in the modern American school system as it should be. Kids and teens are growing up unaware of how to manage their finances, which can lead to poor financial decisions as adults. Parents have to take on this subject area and teach their children how to understand various financial choices and make smart decisions. If you are not sure how to get started, here are some things you can do to equip your child for their financial future.
One major financial situation people need to be prepared for is budgeting. When young adults leave home for the first time, they need to understand how to save enough money for expenses and larger purchases, while determining how much they can spend. This practice can be started at a very young age with your child’s allowance. Help them identify a toy or activity that they would like to save up for. This could be money to take on vacation, or even an expensive Lego set. Help them do the math to determine how much they need to save each week. Then, have them complete a minimalistic budget that lists their weekly allowance, money to save, and money to spend. Make sure they understand the importance of sticking to this budget, as well as the consequences if they go over.
If your child begins working in high school, this is another great opportunity to re-examine their budget. Perhaps they now have to pay for gas and insurance for their car, or they might want to save money for several things at once. Take the time to make a realistic budget for their current situation. Then, sit down and go over a budget that an adult might make, including expenses like rent and utilities. Make sure they understand which purchases are negotiable and which are not.
Another area of life that few young adults are prepared for is investing. One of the easiest ways to help a child understand investments is to purchase some investments for them to watch. Perhaps you would buy a few bonds, or even a stock in a major company. You could also explain to them what different retirement accounts are and why it is important to start investing in their future early. Make sure to go over a compound interest chart so they can see in concrete terms just how much of a difference it makes.
Importance of Saving
Finally, make sure to explain to your children why it is important to save for a rainy day. Take time to go over some major expenses they can expect, as well as how much they cost. For example, you could look at the cost of a replacement tire or an unexpectedly-large electric bill. Help them understand why even saving $50 each month can help them get out of a bad scenario. Additionally, show them some ways they can cut costs (couponing, making their own food, etc.) so they are able to save more.
Far too many adults in the US are in poor financial situations. With parents’ help, this statistic can change for the better. Do what you can to set your child up for success by working through these activities.
Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
Ben Soccodato is a registered representative of and offer securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC. www.SIPC.org 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000. CRN202203-260951
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