In a shocking reality check, I was looking back through my articles and archives as they related to kids and money and came to this realization: My baby is now a college grad and a registered nurse in a cardiovascular ICU. It seems like just yesterday, she was competing in the kindergarten bike rodeo. It goes quickly.
When she was younger, she always appreciated it when I made some mention of her in my writing, so here, I proudly check that box again. It may be too late for me, but my focus here is on several golden nuggets of advice/guidance that hold the potential to make your kids financially secure. I think we can all agree: That's a good thing!
If I was just starting my parenthood journey, here are the money lessons I'd try to instill:
Live the golden rule of personal finance. Spend less than you earn. The challenge of doing this is rooted in our consumer-focused society. Built into this lesson is the ability to differentiate needs from wants, delayed gratification, shopping techniques and skill at budgeting. That short overview should provide you fodder to begin to work this lesson hard and early. Think of a piggy bank with three sections -- giving, saving and spending.
Leverage the power of compounding. I'm not sure about it being a wonder of the world, but to continue with my running "I'm getting old" theme, it's certainly been wonderful to watch it work over the years. Part of driving this home is about talk, but the more impactful teaching will come from showing them. Gifts to fund custodial investment accounts (one in which an adult opens a savings account for a child and manages it) or 529 college savings plans might play a role. Spark the excitement early, and when they look back at your role in helping them become financially independent, it will be big smiles. Incentivize and start saving early; compounding doesn't happen without time.
Watch your expenses. This is naturally closely related to my first two suggestions. Carefully managing expenses can go a long way toward helping your kids live the golden rule. It's also another way to help them leverage the power of compounding. Think about it. If you fund an IRA at today's contribution limit and earn 7% over 50 years, you would have around $2.6 million. All other things being equal, if you spend an additional 1% on investment fees and expenses and only earn 6%, that number shrinks by about $750,000. My point? Make your kids savvy spenders on all fronts.
Home runs are not the rule. A lifetime of singles works just fine. In investing, that might mean broad-based, low-cost index funds as opposed to hot tips and penny-stock gambles that have a miniscule chance of equating to a home run.
Stuff happens. Don't overlook the importance of insurance strategies and emergency funds in protecting our family and finances. Not glamorous, but necessary for our kids to understand.
And a final thought for you, teacher ...
Walk your talk. In the money game, "do as I say, not as I do" is a lot less effective than sharing, showing and demonstrating good behaviors and positive outcomes. I don't know about you, but in our broader family, I can clearly see how the behaviors and beliefs modeled by parents not so miraculously flow down to their kids. Talk about creating a win-win.
Time flies, so help your kids do it right while you still have the (mostly) unquestioned influence.
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