Financial Literacy: A gift that lasts a lifetime.
From things like financial decisions and tradeoffs to the importance of having an emergency fund: Our day to day circumstances are full of teachable moments we can and should share with our children.
Delayed Gratification
One of the most significant financial lessons a child can learn is that he/she might have to wait or save to buy something they desire. Let’s be honest…this is tough for all age groups, but learning it early can truly set the trajectory towards financial success. Giving a child a savings goal, reviewing their progress often and celebrating once that goal is achieved will positively reinforce this simple yet difficult concept.
Being in charge of their budget
Are your children always asking you for money? A friend of mine found a way to change that behavior by having his kids sign a contract of what expenses he would pay for, then giving them a set amount of money to spend each month for clothing, cellphone bill and extras. “My son’s hard lesson came when his friend pushed him into a pool along with his cellphone. … He learned why it’s important to build a reserve for unexpected expenses,” my friend said. Giving your kids a paycheck allows them the chance to make financial decisions – and experience the resulting consequences firsthand.
The Roots of Retirement
Parents strive to raise children who will hit the ground running when it comes to retirement savings. Through experience, we believe it is important to let your children know that retirement is the biggest expense they’ll ever save for, and it’s important to start early. To help them in understanding the value of compound interest, allow them to open a savings account where they can personally experience the power of this phenomenon sooner rather than later.
The Power of Credit
When you’re young, it’s easy to rely on credit–which can jeopardize your financial future. Help your child understand the importance of a good credit score, and explain how to keep it strong. Share stories about how you financed your first house, and explain in concrete terms how the interest rate affected the overall purchase price. Recognizing credit as a tool rather than a crutch is a key to financial aptitude.
In giving your child the gift of financial literacy, you’re helping set them up for a brighter future.
*This article was written by Michael J. Purifoy, CPA, CFP®, Executive Vice President, SageSpring Wealth Partners and Wealth Advisor, RJFS
