No, I don’t mean that talk- but there is another conversation that can be equally as difficult for some parents. It is hard to know when the most effective time is to talk about finances with your children. Teaching sound financial behavior starts as early as a first allowance and continues through college to when they get their first “real” job and thereafter.
Start with basic money management lessons.
Let children know if they save x dollars of their allowance, you’ll add an extra dollar to their next allowance (most adults need reminding about contributing to their employer match). Another effective method is to let them spend one-third of their allowance but make them save one-third and donate one-third to a charity of their choice. Until they get their first job, children generally don't need to know about the capital gains tax or the magical impact of compounding interest.
Consistently reinforce financial concepts.
Keeping up with the Joneses takes on a whole new meaning when applied to younger generations. With the popularity of apps such as Instagram, Pinterest, and Snapchat, many individuals are now trying to keep up not just with their neighbors, but with hundreds of social media “influencers.” It is important to let your children know that everyone’s finances are different. If they can understand and accept this fact, overspending and under saving are less likely to be a problem. Opening a bank account for a child can be beneficial early on so that you can help track and manage expenses with them. Think of a reward for the times monthly cash flow is positive and discuss the importance of over spending when it isn't.
Establish a strong savings strategy.
As your child becomes more independent, they gain access to new ways of spending money. It's all too easy to move from buying a $10 phone case to a $1,000 phone. While a steady paycheck brings peace of mind, it also provides spending flexibly. Be sure to reiterate the importance of saving. Setting up automatic contributions into retirement or savings accounts is essential. With the rarity of pension plans, the responsibility of saving now falls onto individuals. If there’s one thing most of us wish, it’s that we established good financial habits earlier in life. Use your own success as an example and be sure to let them know if there are things you might have done differently with regards to saving and investing.
Provide external resources and expertise.
Whether it’s evaluating an employer sponsored plan or reviewing student loan options, we would be honored to assist in providing sound financial advice to your loved ones. As an Exchange Capital Management client, our resources and expertise are available not only to you, but to members of your family. If you feel that your children could benefit from our services, please reach out to one of our certified advisors.
You have helped build a strong financial foundation for your children, and we hope to be there to ensure your well taught lessons continue through adulthood.
Joe Crowley is a Financial Planning Specialist at Exchange Capital Management. The opinions expressed in this article are his own.