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  • Tye Pipkin

Kids, Educating, Saving, and Investing

Today in this world we are currently living in, we as parents worry about the Fall and if our kids are going back to school and what kind of education they will be receiving. Since that is still up in the air as to how, when, and where they will be learning, we as parents will be partnering with the teachers and how to educate our children. While some of us don’t have a teaching degree, we can teach them an invaluable lesson on life, budgeting, saving, and investing.

Parents worry about kids from the time they’re born whether they will be safe, will they be liked by peers, what college they’ll be accepted in to, and the list can go on and on.  Do we worry about their value of money and how they will handle their finances as they get older?   What about preparing them for the eventual transfer of wealth if we are all so lucky enough to leave a legacy to give to our children? It’s difficult to get children to spend time learning about money at a young age, but it’s important.  The better money management skills they have by the time they graduate from high school, the better off they will probably handle it in college and down the road. 

First, it is never too young to begin wealth education with your children. The first-time children learn to manage money is usually through an allowance. Once the amount is established for an allowance, talk about the goals that have been discussed and practice these skills with their allowance. They will learn how to save their money, budget it for things they may want, or give a portion to charity. In terms of saving and investing, a very important concept for them to understand is the power of compounding and how that makes such a difference over time!  The time value of money is an invaluable lesson.  Just like trying to “catch up on sleep.”  You can’t.  The sleep you’ve lost is gone.  No one can gain time back – for sleep or investing!   And surprisingly, items usually cost a lot more than children realize.  A good practice may be to have your child guess what the bill is next time you visit a restaurant.  Perhaps they will think harder about going out when they start becoming responsible for paying the bill! As the younger children become tweens and teenagers, have a discussion on taxes– items really cost about 30% more than what you pay for them because you are paying for them in after-tax dollars. When a child enters the work force and receives his or her first paycheck, it’s usually a rude awakening! 

The next step in the process of educating your children is to have a family meeting where all participants would be invited. This would be the opportunity to be completely open and honest and to discuss your family values about money, saving, and investing in the future. After defining your family values, develop a Family Mission Statement with input from all the family members that would be affected by the family wealth.  (The suggested age for the youngest child to become involved in the family discussions would be between the ages of ten to twelve.)

There are three important goals to consider when discussing financial education with your children.

1. To help your children to lead a purposeful and fulfilling life

2. To give them the tools and skills to be knowledgeable

3. To help them practice and become involved in the family’s 100+ year plan

All parents want their children to be set for life once they are no longer able to financially care for them. However, we need to caution them on how to lead a purposeful satisfying life. To tell your children that they will never have to worry about money is setting them up to be uneducated about finances and potentially lazy. We want them to avoid the pitfalls that could come in the future in the way of manipulation from unwanted sources, which could be future spouses, friends that want to help, and business opportunists wanting to gamble with their inheritance.  If your children are educated early, they will be able to weed through and know who is looking out for their best interest. It is always good to surround yourself with trusted advisors. Once the family mission statement has been established, then it is time to develop the financial expectations for your children to realistically uphold, depending on their ages.  These goals could range from how to talk about money, saving and investing money, what a budget is used for (short term and long term), retirement plans, and how to protect your financial investment.  Again, special emphasis should always be placed on your specific family values.

For those that have older children that are working and going to school, you can discuss the importance saving and putting away for retirement. Some of our young clients are still paying off school debt and ask if they should pay off loans before contributing to their company 401-k plan. We share the importance again of the time value of money so it’s important to do both; contribute as much to the 401-k as possible while chipping away at the debt.  Many companies match contributions, and that is free money!  

Many kids are visual and especially when they are young, these concepts are foreign.  David Bianchi, a Miami attorney, created a book “Blue Chip Kids: What Every Child (and Parent) Should Know about Money, Investing, and the Stock Market.”   He and his wife wrote the book when they realized their 13-year-old was not learning anything about money and investing in school.  Unfortunately, that is usually the case for most of us.   So, that’s one resource that is not too textbook-like for a teen.   As parents, we somehow need to stress the importance and satisfaction of building up savings and investments so that they are financially comfortable later in life.  Preparing children for the future should be a continuous endeavor. If you follow these steps, hopefully, they will become financially secure and be able to make good financial decisions.

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