Regardless of your own wealth and assets or confidence in your individual financial knowledge, passing along money and investment principles to your children starting at a young age and continuing throughout their early adulthood can help prepare them for a sound financial future.
This education is becoming increasingly important considering ongoing economic volatility and uncertainty surrounding benefits that have long been taken for granted, such as Social Security.
Yet at the same time, a recent study from the FINRA Investor Education Foundation found that nearly two-thirds of Americans are unable to pass a basic test on financial concepts that are encountered in everyday life. Now more than ever, it is critical to help the next generation become financially savvy so that they can navigate future economic uncertainty and secure their own financial well-being.
[See: 10 Things Everyone Should Know About Money.]
Here are a few considerations for sharing financial knowledge with your children throughout several life stages.
Early education on money-saving principles. It’s never too soon to start teaching your children the importance of saving money. Discussing concepts like saving versus spending and risk versus reward early on will help them gradually understand increasingly nuanced financial situations, and ultimately help create an environment of financial literacy that will equip them with the skills to be knowledgeable and empowered investors.
Consider giving your children an allowance to begin teaching them principles around money, budgeting and saving.
If you don’t know where to start, there are many free and paid resources available to help grow your child’s financial knowledge. Check out MyMoney.gov, the National Financial Educator’s Council or your local credit union.
Income generation and long-term financial well-being. A proud moment for parents is when their grown child receives his or her first big paycheck. Once they are out in the “real world” and earning a living, you might consider sitting down with them to discuss their future financial goals and important topics like savings accounts, student loans and retirement. Young professionals are often tempted to blow their paycheck by shopping online or eating out every night, so it’s important to reinforce the benefits of saving from the onset.
First, suggest that they start building an emergency fund if they haven’t already. This will provide some extra padding when their first unexpected expense, such as a car repair or trip to the emergency room, comes along. It will also ultimately help them feel more financially secure.
[See: 10 Important Investments Before Having a Baby.]
In an ideal world, your grown child will have graduated college without any debt. But in most cases, recent grads have student loans following them off campus. Review his or her loans together and make a plan to pay off those with the highest interest rate first. While paying off a loan may not seem like the highest priority for a young adult, explaining how the debt will rapidly compound — which could result in an inability to make other big purchases like a wedding or a home down the road — may help reinforce its importance.
Additionally, encourage your son or daughter to ask their employer about its 401(k) plan and begin putting away a percentage of each paycheck right away (and take advantage of the employer match, if one is offered). As the cost of living continues to rise and uncertainty around the future of Social Security lingers, it is important to stress that it never too early to start saving for retirement. Time spent invested in the markets always beats timing the markets, and investing in a retirement plan as a young professional will only amplify the power of compounding interest.
Finally, if you have a trusted financial advisor already in place, ask them if they are willing to have a conversation with your kids to help them structure their savings and begin thinking strategically about their financial future. This will help ensure these important money conversations are tailored in a way that is productive and effective.
Estate planning and transfer of wealth. As you age and your children become increasingly responsible and discerning adults, the time comes to have what may be more difficult or uncomfortable conversations. The topics of estate planning and transfer of wealth often don’t get the attention they should, but they are arguably two of the most important points of discussion around money for you and your family. Speaking with your children now about what will happen when you are no longer around will help arm them with the tools and knowledge to pick up the pieces in a more peaceful and orderly fashion.
Review your will and other estate planning documents periodically with your children and other relevant family members to ensure that they know your wishes as well as what your assets and accounts are, and where they can be found. They should also be aware of who your key financial professionals are including your financial advisor, accountant and estate planner.
[See: 10 Ways to Buy Industrial Stocks.]
While there may be pushback or reluctance along the way, your guidance — ideally with the support of your family’s financial advisor — will help your children pave the way to a successful financial future that everyone can be grateful for.
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Financial Conversations to Have as Your Children Grow Up originally appeared on usnews.com
