Three Lessons to Teach Your Kids and Grandkids
Teaching Financial Literacy to the Next Generation Leaves a Lasting Legacy| By: Randall E. White, CFP®, RICP®, CRPC®, CMFC®
Moments passed with children and grandchildren are always time well spent. The lessons you give them will last the rest of their lives. April is Financial Literacy Month, an ideal time to begin a conversation with your grandkids about money.
Giving them the benefits of the lessons you’ve learned can help set them up for a happier, more financially secure life ahead. And don’t be afraid to share your successes as well as your mistakes—there’s wisdom in both.
Here are three essential financial lessons you can teach the next generation to set them up for success:
Save Money and Start Early
Earning money isn’t the same as saving money. Many high-income earners never learn how to grow their savings and focus instead on the short term. Saving money for later takes more than just a casual chat—it requires understanding and motivation.
Knowing the “why” behind savings can help fuel positive habits. Start with real-world examples that young kids can understand and see grow. For every dollar, they save, match that amount to show them what’s possible when a future employer offers a 401(k) plan. Jonathan Clements of HumbleDollar suggests using money as a way to instill other healthy choices, like rewarding the child with $1 each time they order water instead of a soda while dining out.
If you want to look beyond positive reinforcement, make the concept of debt into a game. Ask them if they’d like to borrow $5 and then repay you $10 in the future. Hopefully, they’ll recognize that it’s not a sound investment upfront, but if they say yes, set a date for repayment and explain the rules of accruing interest.
If your kids or grandkids are old enough to have a part-time job, that income stream can be their first lesson in savings. Earned income means they can contribute to a Roth IRA, which can help them understand taxes and certain critical aspects of current financial law.
Grow money and find opportunities
Teach your kids and grandkids how to grow wealth while their minds and bodies are still growing. Let them know about the power of compound interest and how it can grow over a lifetime. Here are some ways you can approach the conversation.
- The importance of not keeping your eggs in one investment basket, and instead of keeping fees low and buying broad mutual funds that own a wide variety of companies
- The difference between selling an investment when the price is cheap or expensive (and if they think that’s a silly question, you can tell them how common it is for adults to buy high and sell low!)
- How to invest using a free online game called Build Your STAX, which illustrates long-term investing principles in a quick and easy to understand way that’s perfect for kids
Engaging the young people in your life in these conversations is a great way to celebrate Financial Literacy Month and impart lessons that can help them stay the course.
Spend wisely and focus on the why
Money isn’t just for saving—it’s also for spending, ideally in ways that really make a difference in your life. Whether you choose to use it on a rainy day, buy something you’ve had your eye on for a while, or invest in the quality of life, research shows that saving money can make spending money even more pleasurable. But it pays to spend smart.
It’s great to teach the value of a good deal—buying the same product at a lower price is always a positive thing. If your kids or grandkids have their eye on something online or in a store, some quick internet research can usually turn up a better bargain.
Another good lesson: is the gratification of spending money to help others. Share which charities you support and why, and how your investment in their cause makes a difference. Fostering altruism and compassion at a young age encourages empathy and fosters community.
Buying should always be about balance. Share the 50/30/20/ budget rule with them, a method that allocates post-tax income into three categories: 50% on needs, 30% on wants, and 20% on savings. That can help keep spending in check and teach young people how to consider the bigger financial picture.
Americans have historically high debt levels, with a combined debt of $14.3 trillion nationwide as of March 2020. The lessons you teach your kids and grandkids today can help keep them out of debt in the years to come.
Financial Literacy Month: Lessons for a lifetime
Investing in a young person’s financial health is a powerful way to build and protect their future wealth. It’s not just a way to build their bottom line—having more money often means having more choices, more opportunities, and more access to all that life has to offer. Those who have a deeper understanding of how the financial world works are more likely to live well and even live longer.
Leave a lasting legacy. This Financial Literacy Month, start a conversation with your children or grandchildren and spark an interest in finance that will serve them for a lifetime.
At TriCapital Wealth Management, we are committed to making a positive impact in our community and empowering our clients to make a difference, too. If you’re looking to incorporate some tax-savvy philanthropic strategies into your wealth management plan, contact us today.
Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.