Tag: kids and money

Advertiser Disclosure

Featured

How to Raise a Kid You Won’t Have to Cut Off in 20 Years

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Advertiser Disclosure

Source: iStock

Today’s young people are more likely than previous generations to live with their parents, according to a 2017 analysis from the Pew Research Center. In 2016, 15 percent of 25- to 35-year-olds lived in their parents’ home, compared to 10 percent of Gen Xers in 2000.

Even when kids move out, it’s not uncommon for them to receive financial support from their parents. In fact, 62 percent of Americans age 50 and older gave a relative money in the last five years, with the largest sums often going to adult children, according to a 2017 Merrill Lynch retirement study.

Parents may not find those statistics encouraging, but the good news is there are ways to teach kids how to be financially responsible, and it involves raising the bar by asking kids to do more in the way of financial responsibilities. Studies have shown that when more is expected of a child (or anyone), they actually perform to that level of expectation. The same can be said of how they deal with money.

Don Roork, a Certified Financial Planner at AssetDynamics Wealth Management, has noticed a pattern with kids, adults and money. “Kids learn good money habits from just watching and being around their parents,” says Roork.

Roork also points out that money lessons aren’t always explicit verbal lectures on finance. “Kids watch mom and dad making good financial decisions, and voilà — the kids’ money behavior matches their parents’,” says Roork.

So when it comes to raising financially independent adults, it becomes clear that it’s important to start when they are kids. Here are some ways personal finance experts recommend easing your children — gently and kindly — into financial adulthood by weaning them from the family wallet.

Set expectations

As soon as your child begins asking for things like toys, restaurant meals or trips to the movie theater, they are ready to learn about the money it takes to support these wants. When a child expresses a desire for something beyond the basics, start the conversation then and there about how they’ll soon be responsible for these “luxury items.”

Of course, you don’t have to start charging them rent (not a bad idea, though), but you will want to follow up your expectations with actions.

For example, if your family goes out to eat, your child can pay for their meal or contribute to a portion of the bill. These expenses can be age appropriate and should increase over time as your child earns more money. They can start with things like snacks at the movies and move up to cellphone bills and car insurance.

Financial adviser Jamie Pomeroy of Financial Gusto says this should all start with communication: “Sitting down with your child and having a clear and frank conversation about who’s paying for what, can pay huge dividends.”

Another good exercise would be to show them prices on things they’ll need as adults, like a home or a car. Molding their expectations around what it takes to live will only help them down the road.

To drive this point home, Pomeroy suggests laying out a real plan designed to increase financial responsibility. “Make sure that you and your child are on the same page about what expenses they are responsible for, what you’ll continue to pay for (for now), and then introduce them to a budget to help them manage those expenses,” he says.

Create a reward system

Get-out-of-debt guru Dave Ramsey warns against giving kids an allowance and instead recommends that money given to a child should be tied to actions, like completing chores or other household projects. The idea is to get kids ready for the real world by emulating it with a system of compensation tied to work.

CFP Jeff Rose of Good Financial Cents says, “One of the first steps in teaching your kids financial independence is giving them responsibilities around the home that are both paid and unpaid.”

Ramsey is also a proponent of giving children the opportunity to earn more money in “commissions” when they find extra things to do or take initiative in solving problems around the house.

Teach them personal finance

Many kids are shocked when they get into the real world and finally begin grasping the finite nature of money. Mom and Dad spring for everything, so why would money ever run out?

Clint Haynes, CFP of NextGen Wealth, says there’s a fix for this. “Make it a point to sit down with your kids and show them what your budget looks like, how it works, and why it truly is the foundation to personal finance,” he says.

When your child asks for candy at the store, don’t deflect them with, “We don’t have the money.” Instead, let them know that the money you have available isn’t earmarked for candy, showing them how a budget works in real life.

Other lessons you can teach early on include those around saving, compound interest and even giving.

Brian Hanks, a CFP out of Idaho, has an experiment he urges his clients to conduct with their children once they are high school seniors. He suggests parents hand over their checkbook and have their kid cover all the family’s expenses for the entire school year.

“Paying a family’s bills is eye-opening, and your teen starts to develop new money habits,” Hanks says.

Let them earn real money

You can start by giving your kids an allowance that is tied to performance: completing chores, excelling in school, and having a good attitude can factor into their “compensation.” Be sure to enforce the association between what they do and how they are compensated. Once they can work legally, you can taper off their allowance.

Ed Snyder, CFP at Oaktree Financial Advisors, says children who have jobs will be more thoughtful about their spending and better with money in general. “Working will help them think through their spending and hopefully be more responsible,” he says.

Keep in mind kids don’t always have to wait until they are 16 to get a job. They can start a business or participate in gigs that allow kids under 16 to work with a permit, like modeling or acting.

Challenge them

Not only should your kids be responsible for expenses and make their own money, Eric Jansen of AspenCross Wealth Management says kids should be challenged in their money habits.

“Set up 90-day savings and spending challenges as a fun way to help them better understand and manage the trade-offs between spending money on what they want and what they need,” Jansen says.

No-spend or savings challenges are great ways to teach lessons about money while showing your child what they are capable of if they focus on their goals.

You can even create competitions among siblings, like seeing who can save the most money.

Trust the process

Sound like a lot of work? It is! Financial independence doesn’t happen overnight.

“Some of these [money] lessons may click sooner in some kids than in others — even within the same family,” says Snyder. “Don’t give up hope. … Just keep showing them good examples and teaching them good old-fashioned financial lessons.”

Be patient, be kind, and be confident that the lessons you are teaching them will serve them well into adulthood.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Aja McClanahan
Aja McClanahan |

Aja McClanahan is a writer at MagnifyMoney. You can email Aja here

TAGS: , , ,

Advertiser Disclosure

Featured, Strategies to Save

What Your Teen Should Do With Their Summer Earnings

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Advertiser Disclosure

Source: iStock

According to a 2017 survey released by the National Financial Educators Council, 54% of respondents (all 18 years and older) said a course in money management in high school would benefit their lives. Another survey — the most recent from the Program for International Student Assessment — reports that only about 10% of U.S. 15-year-olds are proficient in personal finance matters, falling in the middle among the 15 countries studied. The message is clear: Young Americans need to learn more about money and managing it wisely. One way to start them off is giving them hands-on experience with their own money. Enter the summer job.

Having a summer job can be a good introduction to adulthood for many reasons: The discipline, submission to management, team work, and a regular paycheck are just a few of the things a teenager will get used to with their first summer job.

It’s also a good way to introduce kids to the real world of money. Though the money your teen earns is technically theirs, as a parent, you should use summer job earnings as an opportunity to help your kids form good habits with money. There’s no better time to show them the value of money than in the crucial years before they’ll be saddled with obligations like student loans, car notes, and mortgages.

Here are a few ways to make sure your teen will get the most out of their money-making experience that will keep them money savvy for years to come.

Pay their fair share

Once your teen begins making money, you’ll to want consider how they can begin to cover certain expenses. You’ll be tempted, no doubt, to let your teen keep their hard-earned money for themselves. Trust this process. If the goal is to raise money-smart kids who become even savvier adults, there will have to be simulations of the real world that include actually paying for things

If your teen uses the car, consider having them cover a portion or all of their car insurance bill. Another option is to have them contribute to their cellphone bill or even some of the Wi-Fi they use.

Having expenses is a real part of life, so it’s better to help them understand that now rather than later when ignorance isn’t so blissful.

If the thought of making your child pay for expenses bothers you, consider a different approach: Teach them about the costs of everyday life by asking them to cover their portion of a bill, but take that money and put it away for them. You can save up all that money and, as a nice gesture, give it to them when they need it most, like when they go away to college or finally leave the nest to launch out into the real world.

Open bank accounts

Source: iStock

While many families do not have access to or elect not to participate in the traditional banking system — it’s estimated that 27% of U.S. households are unbanked or underbanked — you’d ideally want to get your teen familiar with banks and how they work. Though check use has been on the decline since the mid-1990s, it’s still important for teens to learn how to write a check, along with keeping a checkbook register. Sure, this practice probably won’t last long, as electronic payments and money management apps continue to grow, but this approach gives your kids the gist of how to keep track of their cash flow.

While your teen has a bank account, you’ll also get them used to understanding how a debit card works. They’ll get familiar with how easy it is to swipe for things they want, yet how difficult it can be to replenish their account with the money they’re making at their job.

Finally, you’ll want to make sure that your teen opens a savings account. In most states, a person can open a bank account when they become 18. For younger teens, many banks have special teen or kid accounts that a child can share with their parents. Co-owned checking accounts can be opened as young as 13, while custodial savings accounts can be opened at any age.

Developing good habits around saving and managing money takes time and some getting used to. So using their summer earnings would be a perfect opportunity to get into the groove of budgeting for expenses and managing money through a bank account.

Set money goals

Once money starts to flow into your kid’s hands, seize the moment and get them to see the bigger picture. Summer money is great, but paying for life will take much more than what your teen earns from a few hours of work in a bike shop. Begin to show them the cost of things like college, cars, homes, and luxuries like vacations or hobbies.

Once you compare the costs with their summer job earnings, it should help them come to conclusions about how money works: The more you have, the more you can do. The idea is to inspire them to increase their earning potential with tools like education or savings to invest in income-producing assets.

Another result of these conversations could be your teen realizing they’ll want to start saving up for life sooner than later. They may decide to put away money for the purpose of paying for school or their first condo.

Ron Lieber, New York Times financial columnist and author of the book The Opposite of Spoiled, says parents should prompt their kids with an immediate goal like having a college fund. “The best thing to do is to use any earnings to begin a conversation with parents about college, if your teen plans on going,” Lieber says.

Lieber suggests questions to guide the conversation:

  • How much of your college expenses will be covered by parents versus the child?
  • How much have the parents saved for the child’s college expenses?
  • How much are kids/parents willing to borrow or spend out of their current income?

According to Lieber, “The answers to these questions may cause a teen to save everything, if they think it will help them avoid debt in their effort to attend their dream college.”

No matter how temporary their summer job is, you’d do well to use it as a springboard for more conversations about money. Whatever their long-term money goals are, it’s never a bad idea to start working toward them early on.

Learn compound interest

While your teen is making all of those big money goals, you could drive the point home with a lesson in compound interest. Using a compound interest calculator, you can show your teenager many scenarios where interest can either work for or against them.

Run scenarios around savings for big-ticket items versus financing them. The math will speak volumes:

*Example APRs are used. APR will vary on factors like individual credit score, loan amount, and bank requirements.

In the above scenario, you’d end up paying a total of $226,815 in interest. That same amount ($226,815) invested for 30 years with a moderate 3.5% return yields over $636,000!

Seeing these numbers in action should motivate your teen to start a savings habit that they will maintain throughout adulthood.

If they are really excited about the prospects of compound interest working on their behalf, encourage them to open their own IRA to begin investing themselves. This way, they’ll not only understand the theory of investing but also get hands-on experience with it. After all, the time value of money works even better when you’ve got more time. Investing as a teen could set the stage for copious returns later on in life.

Create a budget

Making money can be the fun, somewhat easy part of a summer job. Figuring out how to spend it can be difficult. Make your teen prioritize needs and wants by learning to create a budget. A good practice would be to have your teen make a list of things they’ll spend money on versus how much money they will bring in. You could also introduce them to a money-management app — here are some of the best ones.

This will help them understand the finite nature of money and how their current cash flow stacks up against their current earnings.

Have fun

According to Brian Hanks, a certified financial planner in Salt Lake City, “Don’t be concerned if your teen ‘blows’ a portion of their earnings on things you consider to be worthless.” Hanks goes on to say that it’s better to make money mistakes as a youngster: “Everyone needs to learn tough money lessons in life, and learning them as a teen when the consequences are relatively small can save bigger heartache down the road.”

A summer job should be fun and low-stress, but it can also be used as a learning experience that prepares your teen for the real world. If your teen turns out to be a terrible budgeter or extreme spendthrift, give them more than a summer to learn better ways. Remember, they’ll have the rest of their lives to continue grasping and mastering money concepts.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Aja McClanahan
Aja McClanahan |

Aja McClanahan is a writer at MagnifyMoney. You can email Aja here

TAGS: , , ,