Teaching Kids About Saving and Investing

Now that we’re well into the school year and we’re busy at our house, with math homework, history homework and english and all of these fun subjects. It’s important that we do take time and start to help either our kids or our grandkids think about how can they start investing for their future and starting to educate them on some of these different financial planning topics. When I think back to my school career in high school, I think one of the most valuable classes I had was actually a computer class. And a big focus in that computer class at the Teacher had us, was creating budgets, learning how interest rates work, learning about the stock market. All of these things that ultimately led me to pursue a career in the financial service industry. The problem is, is that class was an elective. It’s not something that was needed for graduation. I was lucky that I had a teacher that you know, introduced us to that early. But it’s not something that a lot of kids are getting knowledge on. And it’s probably one of the more important pieces and it’s something that unfortunately, we’re going to have to take that on as a burden to either teach our kids or our grandkids, going into the future. It’s important though that we also think about you know, retirement for them is going to be very different than maybe what you’ve experienced or what certainly I’m going to experience. The old adage of you go work for a company for 30 years. You retire. You have a pension. You have a Social Security. Maybe you have some in savings. That doesn’t really work anymore. It’s very rare that we ever see pensions with employers. It probably going to be a different Social Security system when those kids get to that age and certainly for myself, I’m anticipating certain changes going into the future. So it’s important though that we think about their retirement plan and really that it’s going to have a lot of stress for them. They’re going to be taking on a lot of that burden themselves and thus, we have to then help prepare them to make some of those adjustments if we aren’t going to have these different financial planning courses in their normal day to day curriculum. So I wanted to go through just some different items that you can start to help teach them. Again, this could be for kids, for grandkids, different things they should be looking at. One of the ones that I think is very easy is, you know as you teenagers and they go get summer jobs, well now they have earned income. You know think about having them set up a Roth IRA. Roth IRA again, that has tax-free growth and tax-free distributions, but say if you’re 15 and that account is going to have potentially 50 years to have tax-free growth. That can have a huge impact on their retirement plan. Now certain kids are motivated by different things. So I have a lot of clients with young kids that you know, they set up these Roth IRAs for their kids, when they’re saying working at Moomer’s or an ice cream shop. Maybe they’re putting in even just $100 a month. Well sometimes it nice, you match that. So maybe you contribute $50 or $100 for their contributions. Just helping them start to get that account established, get that growing for the long-term. You know with that, you know maybe allow them to pick some of the stocks. You know ultimately, you know investments you want to have diversification. But the big thing for them to be interested in is maybe having some ownership in that. You know looking at how companies like Starbucks, Coco Cola, Apple, those are going to be names they’re familiar with. Not suggesting those are what they should be investing in, but allow them to have some discretion on how that account is managed so they actually take an interest in that. Now once an account gets built up, you know those companies again, good companies, very specific industries. You may want to start to introduce more of an indexed based approach to have a little bit more diversification. Again, make it interesting of them. Have them have some discretion on that. Obviously, don’t take a ton of risk. But the idea is, get that account established and then start to introduce investments and learn how those markets move and what they can expect from these different types of accounts. With that, we also want to teach them about budgeting. You know we think about kind of this three bucket approach. We have our checking account for money that we need in the short-term, for day to day expenses. You know, the second bucket would be more of emergency funds, savings, money market type accounts. And then we have our third bucket for our investments. I get it, if they’re 15, they probably don’t have a lot of expenses in that example. The idea is starting to get them to think about how they can start to fill up these buckets before they move on to the next one. That’s just a habit that will take them very long into to future and then when they’re 30, 40, actually in a career, they’re going to still have that healthy habit of creating a budget. I think probably the most important thing though that we can teach them is how interest rates work. The number of clients that I work with that come out of school. Say they’re a young Physician. They’re graduating college. Maybe they have $200K in student loans. They’ve been making these minimum payments on these loans and they come to us and the balance just keeps going up. A lot of people that don’t understand just simple interest amortization is huge. So if you have teens that are maybe going to college in the next couple of years, start teaching them how compounding interest works. How mortgages work. How student loans work. The impact that that can have on them is going to be phenomenal over the long-term. If you can teach them about how to reduce their overall savings or excuse me, increase their overall savings. Reduce their interest payments, that can have a pretty large impact on them long-term. That with some of the other things we talked about, is going to start to set them up for success. Another great resource is check out our YouTube channel. We have a lot of different educational content that they can look at to see about budgeting, different invest accounts and of course, we’re always a resource to help them as well.