Beyond investing, long-term financial success also depends on developing good financial instincts and exercising consistent positive financial habits. Ultimately, it’s up to each of us to make sure we give our kids the knowledge of personal finance they need. Fortunately, there are a plenty of common-sense ways to pass along good financial habits.
Here are seven tips that can help you teach your kids about money, starting with the steps to take with younger children and progressing through lessons relevant as they move toward adulthood.
- 1. Give your child an allowance. Earning an allowance can introduce kids to the value of money and making choices for themselves. Start when your child is little and consider tying at least part of the allowance to chores to help instill a work ethic.
- 2. Emphasize savings. Kids are likely to eventually want something that costs more than what they have in their piggy bank or savings account. That’s your chance to teach them how save and to reinforce the concept of delayed gratification.
- 3. Encourage a summer job. A Schwab survey on kids and money shows that when young people have jobs, they are likely to be better savers later in life. You can reinforce the emphasis on savings by making sure your child is saving a bit from every paycheck.
- 4. Introduce them to investing. As kids get older and hopefully have some money accumulated, you may decide to open a custodial brokerage account and let them choose some stocks. It’s generally best to work with an advisor to do this, as there may be unique tax considerations.
- 5. Teach them about credit. Consider making your child an authorized user on one of your credit cards. There are practical reasons, such as having the card to use in an emergency. But this is also about teaching them how to borrow and spend responsibly. Require them to pay back every dollar they charge, and make sure they understand the basics such as the difference between a credit and a debit card.
- 6. Help your child set a budget. When your child is living on their own, during college or after they graduate, talking them through the process of setting a budget will help them better understand how they are spending their money.
- 7. Encourage good investing habits. As your child gets older and perhaps has retirement benefits through their job, help them understand their options. When they start putting money into a retirement account, that’s a good time to talk about basic investing principles such as diversification, risk tolerance and staying invested over the long run.
As parents, we’re always trying to find ways to support our children, and few of our efforts can compare to providing them a solid foundation of how good financial behavior can support their future goals.
Fred Gaskin is branch leader at the Charles Schwab Independent Branch in Bluffton. He has over 35 years of experience helping clients achieve their financial goals. Some content provided here has been compiled from previously published articles authored by various parties at Schwab. For more information, visit schwab.com/bluffton or call (843) 473-3620.