Last week, we discussed how young to start teaching your children the value of a dollar and how to manage it. Now, let’s focus on tips to help teach money management skills to the Young Adults in your life.
For weekly insights, follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment.
Once in high school, it’s time for students to ramp up their financial education with expectations of a first job, whether it be after school or over summer break. Allow them the opportunity to find their own job, if possible, as it will build a great deal of confidence for them to achieve their first job. In addition to a savings account, it is time to introduce the concept of investing. 10% of income from their new job would be a good start. Have them open a broker account at a discount broker such as Charles Schwab with you as a joint owner. If you are willing, as an incentive for them to save, consider ‘matching’ their savings with a ROTH IRA in their name. Buying individual stocks, mutual funds, or Exchange Traded Funds (ETFs) is easy and can be done in small amounts. They can start with a few stocks they know and love (i.e., Amazon, Apple, Google, etc.). Have them do the trades and show them how to follow their stocks using your brokerage app, such as Schwab, etc. Be sure to engage with them periodically… “How are your stocks doing?” Use this as an opportunity to discuss how the stock market works…it goes both up and down…but up over the long term. Have them Google a chart of stock performances over long periods of time.
As they move into their junior/senior year, consider giving them an allowance for buying their own clothes, haircuts, gasoline, etc. In a few short years, they will have to do this unsupervised. Now is a good time for you to mentor them.
Ideally, by the time your child is ready for college he or she will have substantial skills with money management. Consider setting a joint bill-paying account where they are responsible for paying many of their expenses, such as tuition, rent, food, clothing entertainment, and personal expenses. You should fund this monthly based on a yearly budget you develop with them. I recommend this be a joint account so you can monitor their progress. I remember one college friend whose parents gave him a year’s worth of college expenses and he disappeared for six months traveling around Europe! Continue the investment program while expanding the investment experience with concepts of asset allocation.
You should also have them begin developing their career plan. What are they interested in? what are they passionate about? I remember being passionate about karate and told my dad I thought I wanted to be a karate instructor. He gently suggested I look closely at the lifestyle of instructors I knew. My instructor at the time was living in his dojo (to save money). Fortunately, I chose to work in the investment and financial advice field.
By the time your child finishes college, he or she should be fully equipped to manage their financial affairs.
Why does this matter?
Children who learn how to manage money early tend to be very good money managers once they are on their own. Unfortunately, most kids receive very little training in money matters and learning the harsh lessons once you are in the real world and can have lifelong consequences. This is evident by the fact that less than 5% of Americans have sufficiently saved for retirement. If you have more questions on how to start teaching your kids about money management, be sure to consult with a certified financial planner.
Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including 50 Rules of Success; J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch Group. Consult your financial advisor before acting on comments in this article.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC [“Welch”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.welchgroup.com. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.