Today, with many high school and college commencements celebrating virtually, many young adults have graduated with much uncertainty and fear about their next move. Will their first experience with college or university be online in the fall? Will the job market stabilize? Will job offers received pre-pandemic still be on the table? With so many question marks, it’s responsible and timely to have a frank discussion about financial wellness and how to achieve financial goals with your children.
Most parents want to help with and plan for their children’s financial futures. Many parents, however, may feel uncomfortable or reluctant to openly discuss financial matters. Overcoming this hurdle and having open and free dialogues about financial development likely will impact and benefit your children and their future. It is never too early - or late - for young adults to begin learning the benefits of saving, investment strategy, and financial independence.
At Private Capital Group, we not only care about our clients’ financial well-being, but your children’s as well. We believe that it is never too early to bring them into the financial discussion.
Below are some key topics and ideas to discuss openly with your children of all ages:
Young Children- The SAVE, SPEND & GIVE model
Important money lessons may not be a part of school curriculum, giving parents the opportunity to educate their children. For young children, it may be wise to start with the Save, Spend & Give model. A loved approach to teach this method is to label (or have your children label) three jars, “Save”, “Spend”, and “Give”. Encouraging your children that money earned or gifted can be placed in one jar or split in two or three ways. For instance, if you pay your eight-year-old daughter an allowance of $5 per week for doing some chores in your home, she may choose to “deposit” her $5 in one of the three jars or divide her earning in three ways. Inform your children that saving money will help them as they grow up but spending occasionally on a small treat is OK too. Giving to a charity of choice, such as a local food bank or church is also a great choice. Teaching our children to share with those in need can help them feel connected to their community. Save, Spend, Give is a proven practice that helps children visually understand the idea of saving for a goal, spending within their means, and joyfully giving to something they truly care about.
Adolescents- Teenager Money Management Lessons:
Our teenage children are on the brink of becoming adults and it is imperative that they understand finances and are saving for long-term goals. For teens, knowing financial concepts can be instrumental in their financial independence. Inspiring positive habits in money management, including saving, spending, and budgeting, and teaching them how bank accounts and credit cards work will bolster their long-term financial security and their transition into young adulthood. Lead by example and encourage open communication about money.
Young Adults- Continuing the path to financial wellness:
- Establishing a budget is critical in developing short and long-term savings goals, paying daily expenses, and paying recurring monthly bills. Those that participated in the Save, Spend, and Give model above should be well equipped to bring those skills learned in childhood to young adult life.
- Start contributing to a retirement plan immediately upon your first real job with a paycheck.
- If you have an employer matching retirement program, attempt to max out the employer match. This “free money” is a major job benefit and your children should maximize their plan to contribute.
- Pay bills on time to avoid unnecessary bad credit. Building up your credit history score can help you receive lower rates on credit cards and other loans as well as avoid poor resulting credit checks from future employers or landlords.
- Build up an emergency fund of liquid savings that is quickly accessible as an added precaution. As we have seen in recent months, a “rainy day fund” may be crucial to help prevent major headaches when something catastrophic occurs. Experts suggest having between three to six months' worth of expenses in a savings account.
- Invest in a Roth IRA
- When you fund a Roth IRA with your after-tax money, all future withdrawals in retirement are tax-free.
- Roth IRAs are best when you think your taxes will be higher in retirement than where they are right now
- Those under 50 years old can currently contribute up to $6,000 per year
- Those with higher incomes are ineligible to contribute, thus a Roth IRA is a perfect starter retirement account for younger adults with earned income.
- See below for how investing in a Roth IRA earlier can significantly impact your balance later in life:
(Source: Fidelity Learning Center- “Turbocharge Your Child’s Retirement with a Roth IRA for Kids”)
- Financially give to organizations or causes they care about. It is important to both give back to the community and organizations but also important for tax benefits.
- A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions.
- Remember that successes and failures are a part of understanding and learning about investing.
Above all else, we must teach our children that resilience is key. As we have seen in recent weeks, stock market highs and lows are possible. Those who practice smart money management can reap the rewards of a sound investment strategy even during uncertain times.
Private Capital Group would like to congratulate all the graduates of the Class of 2020 and we look forward to seeing the many achievements and contributions they will make to society. Do not hesitate in reaching out to your advisor and remember that we are here to help guide you and your children in all aspects of financial wellness.