29 Aug Teaching Your Kids to Be Financially Independent
From the moment your kids are born, you begin teaching them about life. The older they become, the more complex the lessons. As they stare down their last year of high school or first year of college, you’ve come to realize that you need to prepare your kids for life out from under Mom and Dad’s protective wing. And this includes teaching them all about the wonderful world of finance. A little unsure where to begin? Try these to start.
Set Up Expectations
They may technically be adults now, but your kids still need to be taught. That means starting at the beginning. It’s likely they don’t know the first thing about finances. Without a checking account, how would you know how to balance a checkbook, let alone write a check? It’s time to sit them down for another talk. (Don’t worry – this one will be easier than that “other” talk.) Explain the basics of money in, money out, and making a balance. Add in what you think is important, but don’t take anything for granted. Look at goals for the future, and be clear about when and how they can turn to Mom and Dad for cash.
Set Up a Budget Together
Setting up a budget with your adult child would make a more concrete example of those expectations you just set up when you put down on paper (or into a spreadsheet) where that income is coming from, and what expenses need to be paid. It will also spark the questions that need to be asked like, “Is your job sufficient for the lifestyle you want to live, or do you need to look for something better?” Or, “Will you be able to afford rent and groceries if you are paying for a streaming video membership?” While you’re on the topic of rent, this would be the appropriate time to let the kids know if you will be charging them for room and board when they live with you. (Which is a great way to get them to introduce them gently to the concept.)
Set Up a Credit History
Many will applaud the “cash only” way of life, but such a life could make it a little more difficult to buy a house, or even rent an apartment, in the future. Start with having your child sign up for a single credit card in his name. Then comes the lesson about only charging what he can actually afford – i.e. if you don’t have the money in the bank, you don’t put the purchase on the card. Let him make a reasonable purchase on the credit card and wait for the bill to come. Once the bill arrives, you’ve got your next lesson due – paying the balance off immediately to avoid debt. Once he’s got that lesson, there’s no reason to regularly exercise that card. Cash only at this point is just fine.
Set Up a Meeting with a Financial Advisor
Let’s face it: we all made silly financial mistakes when we were younger. It’s never too soon to start working with a financial advisor. Every penny your kid makes from now until retirement should be working for them, whether it’s to further fund their education or help them blow off steam with some fun time. By working with a financial advisor as soon as possible, they can learn all about their own Money Personality and how to overcome their weaknesses and use their strengths to set them up for success.
Need more help with advising your kids, or maybe even advice for your own financial situation? Talk to us at the Hopman Group about any of these needs.