Raising Savers: Teaching Your Kids How to Avoid Learning Financial Responsibility the Hard Way
Who doesn’t remember their first job, receiving your first paycheck, and even applying for and using a credit card for the first time? Access to money provides a sense of freedom and the ability to buy things you want with your own money. For many of us, we find it easy to spend money. When we are young, we don’t think much about the importance of saving and having funds put away for life’s responsibilities and emergencies.
Saving money for a rainy day may seem like common sense; however, according to a report published by Bankrate, nearly one out of four adults admitted to having no emergency savings. But why is this the case? A CNBC and Acorns survey may partially explain the root of this problem beginning in childhood. The report found that 31% of parents don’t discuss finances with their kids.
Building up your savings may seem like climbing a mountain, especially when starting with a small amount. However, taking small steps will eventually get you to the top. But it requires consistency, discipline, and a little sacrifice. Do you remember how hard it was learning about finances by making mistakes? Don’t make your kids suffer through that like you had to. Here are seven tips you can teach your children, so they don’t have to learn the hard way.
1. Explain needing versus wanting
A great place to start with money management and savings with your children is wanting versus needing. For a young person, differentiating the two might seem difficult as you can probably remember growing up and “needing” that Nintendo or a handful of Laffy Taffy’s. Obviously, kids feel like they need much of what they want. Working with them on the differences between their wants and needs can help them manage their spending.
2. Teaching kids by example
When teaching your children things like playing guitar or swinging a golf club, you may think nothing of teaching by example or performing the task yourself. When it comes to finances, you may have noticed in your own home growing up that parents may be hesitant to teach by example, which has proven to have negative generational repercussions.
3. Set savings goals
Teaching your child about setting goals is crucial as you introduce them to saving. Creating short- and long-term goals helps to provide your child with direction, keep focused, prioritize their time, and measure progress.
4. Have them track their own spending
Tracking your spending habits requires a certain amount of self-discipline. For a child still learning about the value of a dollar, having them track their spending of allowance or job money could benefit them for their entire lives.
5. Open a savings or brokerage account
Generally, a child must be 18 to open a savings and brokerage account independently. However, a minor can have these types of accounts with the supervision of a parent or guardian. Consider opening a brokerage account for your child, for example, a Roth IRA for a minor or a Uniform Transfers to Minors Act account (UTMA). Your child can learn how to invest their money by purchasing stock, bonds, and mutual funds. With supervision, they can learn how to manage their money and observe how the market works using smaller increments of money to help mitigate the risk of poor financial decisions in the future.
6. Contribution size doesn’t matter
When you were young, you may remember the first time you considered starting a savings program but then held off thinking, as many people do, “I don’t have enough money after all my bills and expenses to save much of anything.” Contributing small increments over time accumulates surprisingly fast. Showing that magic to your child may help to build a foundation for a lifetime of saving.
7. Consult a financial professional
You might be one of those people who is uncomfortable discussing money with your child. If that is the case, have them sit with your financial professional, who can provide them insight into the benefits and techniques for saving. Even if you are comfortable teaching your child about finances and strategy, it might be an enriching experience for you and your child to consult a financial professional, as they may have advice that never crossed your mind.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Sources:
Americans think parents should teach kids about money yet many don’t (cnbc.com)
Bankrate’s Annual Emergency Fund Report | Bankrate
This article was prepared by LPL Marketing Solutions
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