Teach Your Child or Grandchild These Five Financial Basics
Imagine an aspiring student athlete attending fourth period economics in an ordinary high school classroom. While others might have looked on Economics as dry, this student found he really liked the study of the world’s markets and how they operated.
The above scene is from my high school experience where my interest in financial planning was sparked. Intrigued by the concept of compound interest and what I saw as the inherent opportunity in the stock market, I knew I wanted to learn more. After high school, I pursued an undergraduate degree in Finance along with a minor in Economics, and a year ago I joined Laurel Wealth Planning as an Associate Wealth Manager.
As I read the “Five Financial Basics” below, I thought of my own college experience and that of my peers. It was common to hear of the ballooning cost of post-secondary education. I witnessed many of my peers financing their futures with substantial debt, myself included. But interestingly these large debt burdens did not seem to invoke a frugal nature among my fellow students. In fact, in many cases, I often found just the opposite. For example, I once heard a student, while holding a designer coffee say, “My bank account is practically zero.” This same student went on to talk about the exotic trip he had planned for spring break. Of course, I’m not calling for cutting out of all life’s fun, but I do think we should all strive for a balance.
I often feel that the troubling issue of large student loan financing gets too little attention, as does basic money management. However, sometimes there are rays of hope: The lack of strong money management skills is not a concern for local student Maya Peterson. Highlighted in a recent write up by the Star Tribune, she was described as a “Minnspiration.” The article tells Maya’s story of having sold her American Girl dolls at age nine to fund her purchase of stock in the company who made the dolls. More recently at age fifteen, she’s written a book called “Early Bird: The Power of Investing Young.” Inspired by my own experience and Maya’s story, I thought some of you might enjoy the following that highlights some simple steps young people can take to set a foundation for developing their money management skills.
From my perspective, training your children and grandchildren on basic money management may be the best investment you ever make. Feel free to forward this on to others, and please let us know if you have any questions.
Teach Your Child These Five Financial Basics
A recent Money Matters on Campus survey revealed that more than 40% of new college students didn’t feel prepared to manage their money. Some were reluctant to even check their bank accounts for fear of what they might find. Clearly, some advice would be helpful.
Consider talking to your kids or grandkids sooner, rather than later, about basic financial management. These skills are much easier to learn before they become financially independent, as there are fewer financial factors to consider. Teaching them a few basic principles now will leave them better equipped to deal with more complicated matters down the road, such as mortgages, healthcare and tradeoffs that may need to be made in retirement.
Start with these five basics:
Determining how much money they have
Although most college students are more likely to consult an app than an actual paper bank statement, it’s essential that they understand what they’re looking at. Explain any unfamiliar terms, such as “posted” vs. “available” balance. This way, they’ll know exactly how much cash they have on hand.
Understanding credit offers
College students are easy prey for predatory lending practices. Teach yours to recognize the differences between good offers and bad ones. While it’s important to establish a credit history, it’s even more important to understand how credit works and how to use it responsibly.
Distinguishing between wants and needs
Building a solid financial foundation requires understanding the difference between wants and needs. Since most young adults have had their needs taken care of by their parents, they’re used to spending their own money on wants. As they grow older, it’s crucial they learn to put needs before wants.
Establishing a simple budget
The sooner young adults learn to budget, the easier it will be to grasp the basic skills. Teach them the importance of developing a plan for their income and how to prioritize. Perhaps help them build a spreadsheet or set up an app to track and categorize their expenses.
Thinking about tomorrow
Teach your kids to think beyond today, and encourage them to save for themselves, the future and others. It’s never too soon to save for retirement and to start thinking philanthropically. And everyone can use a rainy-day fund to help get them through the unexpected.