Kids and Financial Preparation

Ledia - posted on 03/11/2015 ( 5 moms have responded )

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At what age did you really get into Financial Planning, budgeting, and investing with your kids?

My son is 10 now, and I think we are behind in how well we've prepared him. He's gotten allowance linked to chores since he was 3, so he knows the concept of earning and spending. When he was 5, we helped him open his own children's savings account and 529 College savings plan at our bank (the savings acct. is free for him because we bank there as well, and we pay the small upkeep fees for the 529). He dedicates 15% of his income to the 529, and uses the Savings Acct. to save up for larger purchases; he decides how much he wants to put into the savings acct. based on what he wants to buy. That's pretty much where we stopped.....

Now he is 10 years old, and I feel he knows very little about investing to get the most out of his money, and I am not sure we've adequately covered debt. I know so many people who are being or who have been foolish with their finances just because they do not understand budgeting and investing......and many of them are very intelligent people!

So, where did you start with your children?
How did you teach them about debt management? Good v.s Bad debt, when it is okay and not okay to take on debt, and how to manage debt once you have it, and so on?
How did you teach them about different investing options? I want to let him try some bonds and term CD's because they are very safe and provide a reasonable return for a child, but I have not had him save up enough to invest on his own, and that will take him a long time with his current income levels and spending habits. Did you provide your children with the capital for their first investments or have them save it up themselves?
Lastly, when did you introduce riskier investments such as stocks, properties, and other market centered investments? I want to introduce those while he is still young so that he has time to recover if he looses money, and he can learn the value in waiting out market fluctuations....

I know I've screwed up, I'm just feeling rather lost as to how to get back on the right track.....

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Trisha - posted on 03/13/2015

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Hrmm. This is an interesting idea. The only way I could think of making that happen would suggesting that he borrow some sort of tool for his work, that he couldn't afford otherwise. For example: If he made a business out of shoveling walks, suggest he buy a snow-blower to make the job faster and easier, so he could get more houses done. At that point, go over putting down a down-payment on the expensive item, loan terms, then the interest, then the ACTUAL cost of interest.
You could at that point go over the benefit of the item (how many more houses he would be able to do) vs the expense of the item, plus interest.

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Ledia - posted on 03/16/2015

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That is a really good idea.....

He is wanting to purchase a portable pressure washing system for his car washing business this summer. The one he picked out is about $140, and he is debating plunging into his Gift Wrapping money to pay for it. I could consider giving him a loan at 8% compounded monthly (Lower than most credit cards, but I think fair for a little kid). I could show him exactly how much interest he would pay each month, and how much he would save by paying it off quicker. We could also evaluate whether the investment would reap a return large enough to replace the Gift Wrap money by next Christmas or if he will not see a true profit until next year....

That's a really great idea! Thanks! I never thought about giving him a loan....

Ledia - posted on 03/12/2015

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Thanks! Our philosophy is much like yours. My son has regular chores that he does not get paid for, and another list of chores he can do to earn money. Much like your's.
I also encourage him to run and manage his own businesses outside our family. This past Christmas he made nearly $400 wrapping gifts for our neighbors and family members, and he put $200 of it in savings and plans to use it to purchase advertising and supplies to grow the gift wrap business this coming Christmas. I am interested in seeing how he reinvests that much into the small business....

We do keep up with allotting money to savings. I designed a 3 page workbook on Excel. The first page is his income and expenditures--just like a checkbook register, except with 3 extra columns: Date, Source (how he earned or spent the $$), Amount, Balance, Parent Initial (we sign here to note that he did complete whatever chore he is claiming), Paid (we note here when we give him cash), and Initial (we initial here when we give him cash).
When he does a chore, he fills out his log and we sign it. If he wants to buy something, we pay, and he notes the expenditure on his log. If he wants cash, he brings us the log, we note how much we gave him in the Paid column, and sign it. He then subtracts that from his balance. We sort of act like his checking account. At the end of each month, we add up all of his income, and electronically transfer 15% into his 529 from our bank account. He likes seeing how his money there is growing and has learned to budget so that he is sure to have at least 15% left over at the end of the month. He also decides then how much of his leftover income he wishes to put into savings or keep for current use.

The second page is his savings log. He can note deposits and interest payments to his savings account. He can see that online any time, but I thought having a hard copy and making him do the math himself would be more beneficial.

The last page is a place for him to not his financial goals.....like how he is going to invest in his business, or what kind of toy he wants to save up to buy, and WHY these things are important for him to achieve. I find that thinking about WHY I want something, helps me to avoid making frivolous purchases or wasting money on things i do not really need.

I want to figure out a way for him to learn about managing debt--paying interest, and when it is and isn't okay to pay interest--but I'm having a hard time with that....

Trisha - posted on 03/12/2015

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A lot of these things most people haven't even been introduced to until they are in their 20s. You certainly have not screwed up. It is still super early.

I personally think that in order for people to truly appreciate what they get, they need to earn it, so I will not for my own child, or for my stepson give them money without them working for it.
I would not put much focus on the rest until he actually had a part time job outside of the home. We also do not pay my stepson for chores inside the house unless it is outside of the basic maintenance of the home. On top of financial responsibility he also has to learn that there are simply responsibilities that you must do in order to be a responsible person, without getting paid for them. Ex. He is getting paid to do renovations in the home, but he does not get paid to do dishes, or help with basic chores.

Have you kept up with the allotting money to savings? Consistency in that is probably one of the most important things you can do. If you have done that, you DEFIANTLY haven't failed. Having raised your child with that type of commitment to save money is a fantastic feat.

At that point, I think it is just a matter of setting a good example. Soon, we will have a couple of rooms for rent in our house. I think that will be a good opportunity for us to show our children the worth of property.

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