Accounting On Us
How not to financially ruin your kids
Setting them up for their best financial future
Michael J. Carlin, AIF® and Brett Carlin
I am often asked for tips on how to help my clients educate their children on money. It will start innocently enough with a light question floated out like, “So Michael, what is your theory on allowances for kids?” Or something more direct like, “I am worried my kid is going to grow up clueless about money. Help us!!!!” Whether you have asked your advisor or not, if you are a parent, you undoubtedly thought about the best way to educate your children about the value of money. Thank you to my favorite millennial, Brett Carlin, for contributing to this article.
The best way to set your kids up for financial success is to start early. Begin shaping their beliefs on money as soon as they are old enough to comprehend that the world revolves around it. Show them discipline and how this discipline must be enforced. One of the greatest burdens you can put upon your child is to give them money and forget to teach them that it does not grow on trees. Even if you are financially stable, it does not mean your kids will live the same leisurely life.
Money doesn’t grow on trees
When children grow up, their financial stability will be at their own mercy. Even if parents have the luxury to spend money how they want, many other parents do not. And chances are your child won’t either, even well into adulthood. The important lesson is money does not grow on trees, but it certainly grows from seeds planted in financial success and rooted in hard work.
First time income
The best starting point would be to make your child find a job. Although the youngest working age in many states is 14, this does not mean you cannot teach your child through your own means, such as babysitting. Or easier still, household chores and other tasks that your children do not necessarily want to do as early as four years old. For many of my friends this was the local supermarket, which allowed people to start working as young as 14. I had many friends who took this avenue, and each of them had the same memories of being a cashier at a busy super market: that it was horrid.
The main teaching component of these manual labor jobs is not to get them to start bringing in minimum wage at minimum hours a week. The goal is to show them they do not want to work these labor-intensive jobs with a low opportunity of growth for the rest of their lives.
Once they get a job and start earning income, you want to set up a bank account for your young one that you can monitor. The best age for this depends on the responsibility of your child. The best practice is before they get to high school, so they have a base knowledge as life picks up pace significantly after they enter high school.
Spending vs saving
So now your kid has started to learn what it’s like to make their own money and start earning income. Now it’s time to focus on teaching your children how to manage their money.
Firmly encourage them to split their income in half: half going towards saving and the other half they can do with as they please. This is setting the foundation that your children will build upon for the rest of their lives, and it is crucial that this is done while in your care.
Tough learning lessons
Because kids spend, odds are occasionally they will not choose to split their income. Instead, deciding to spend it all on a new game and depleting their bank account. This is a learning lesson. Having them deplete their money while in your care is crucial because it teaches them that once they are out of money, there isn’t any more coming in until the next pay week. If you spend all your money on nonessential items over the weekend, there is no chance you’ll survive the week.
Ways to make their money work for them
Although putting money away in the bank is great, it’s still not the most fruitful of options. One option that many of my friends and I utilize is the advantageous aspects of RoboAdvisors. It is the perfect solution for anybody who wants to invest but does not have an influx of excess capital. You cannot spend money on the trading charges that add up over time without depleting your net worth significantly. It is especially useful for your young children as well. Although, another option would be to create a brokerage account in their name at Schwab, but your child would not have access to it, what goes in, and most importantly, cannot see how the money is working for them. This is a very important part of the saving/spending plan because if they do not see their money working for them, they won’t know how beneficial saving and investing truly is.
Teaching your kids the importance of saving as early as possible will work better if the groundwork has already been laid down for them. But no matter your wealth, saving is a crucial task and part of being a successful adult. If done right, it can ensure your children are financially stable for the rest of their lives.
Michael Carlin, AIF®, is the President and Founder of Henry+Horne Wealth Management. He can be reached at (480) 483-3489 or MichaelC@hh-wm.com.
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