August 14th is National Financial Awareness Day. As kids begin heading back to school from summer vacation, it may be just the time to discuss the importance of personal finances to young people. We tend to be reactionary with our finances- seeking help and looking for answers only after a problem has presented itself, leaving many behind the 8-ball when it comes to financial matters. I’m sure most of us have had at least one, if not several instances, where we find ourselves thinking “I wish someone told me about this when I was younger”.
Budgeting
Let’s face it: kids are expensive. We all know a sound budget is important when raising little humans- unfortunately, they rarely understand. As kids graduate from an allowance to their first paycheck, consider sitting them down and showing them how to be thrifty with their newfound income. Be it gas money or Uber, Starbuck’s or pizza with friends, they need to understand how to make their money last. Encourage them to plan rather than come to mom and dad for a bailout. An early start on budgeting with parental guidance can lay the groundwork for better decisions when little birds leave the nest.
Credit Cards
Credit card companies set up shop on college campuses around the country to hand out free shirts and knick-knacks for a reason. Unsuspecting college students are easy targets and are often drawn in by the opportunity to spend now and pay later. Often, they simply don’t understand just how much they “pay later”. Have a discussion with your kids about how credit card companies make money and help them to understand the gravity of high interest rates.
Keep in mind that credit cards aren’t all bad. They can be a great tool for building a strong credit score early if done right. One way of achieving this may be through utilizing a secured card backed by an initial deposit at a bank or credit institution. Secured cards are easily approved for young people who may not have credit yet. Stress the importance of paying off credit cards monthly, and the benefits later in life that come from responsible spending and a strong credit score.
Saving and the Power of Compounding
Saving early and investing to utilize compounding interest can be a fruitful endeavor. The “rule of 72” refers to the ability of invested savings to double every 7 to 10 years depending on the rate of return. The bottom line: saving a dollar at the age of 25 will have a greater impact than saving that same dollar at 35. Although it may be tough to budget for savings early on, we shouldn’t overlook the increased value and impact later in retirement. Explain to kids and young adults the increased purchasing power of money saved early on, and how it might help them on a path to early retirement or other life goals. They may need encouragement but showing them the exponential impact of an early start should do the trick.
As much as we all wish “Budgeting 101” or “Intro to Credit” were part of every high school sophomore’s class schedule, bringing about that kind of change is like turning around an oil tanker- it’s going to take a while. In the meantime, take this August 14th to broach the issue with someone who could benefit from getting in front of that 8-ball. Maybe it’s a son or daughter, niece or nephew, or your grandchildren- the one thing they all have in common is an ability to benefit from learning about their finances at a young age.
