\Who’s had the largest financial influence on your decisions around money?  The answer may surprise you.  Beginning at an early age, it’s natural to absorb opinions and philosophies on money by watching and listening to our parents.  Many of their decisions, viewpoints, and ideas have been subconsciously ingrained over the years and influence our present day financial choices.  Knowing this, what are some positive steps we may share so the next generation may be better prepared to manage their money?

Holding cash in your hand and weighing spending choices as a ten-year-old is a lot different than receiving a lecture on how to spend.  One of the best steps to help children (of all ages) learn about spending and saving is by providing them an allowance.  Not for chores or walking the dog, but simply to hold cash and actively make decisions on what to do next.

When our boys were young, we provided each of them with three Tupperware containers to hold their cash and coins.  One was to spend, one to save, and one to give to others.  Honestly, the giving container often remained empty as the spend and save container tended to receive most of the proceeds.  That’s ok as it was up to each of them to determine where they allocate what they had.  That choice, that freedom, is powerful when handling money at a young age.

The single best idea in teaching financial literacy is putting cash in the hands of your kids.  How much?  Depends, we give each of our boys half their age in allowance each week.  This has worked out well over the years and ultimately encouraged our oldest to get a part time job.  The rationale was simple, he wanted more money and the freedom that came with it.

Getting a job teaches valuable skills on spending and saving.  A lot of other useful lessons may be picked up along the way including time management.  Jobs are popular as teenagers would like to do cool stuff and cool stuff costs money.  Having the ability to earn an hourly income and then direct the proceeds where you choose is the first step to financial independence.

While our boys continue to live at home money mistakes will happen, it’s ok and to be expected.  Misplacing a wallet, spending a ridiculous amount at Chipotle or on in app purchases is all good.  Their money, their choices.  As parents, where our children choose to spend offers opportunities to chat about choices.  Mistakes made at a young age teach valuable lessons and lessons stick in the long run.  I’d welcome the opportunity for mistakes now versus handling money for the first time independently in your late teens or early 20s.  Some mistakes or habits at that age are more difficult to change or overcome.

Utilizing a bank account and debit card allow teenagers (young adults too) to spend only what’s available.  This empowers them to buy the cool sneakers and/or new phone.  The idea is simple, spend what’s there leaving room for the unexpected.  It’s easier to purchase something on Amazon with a debit card then a Tupperware container full of cash.  Linking a bank account or debit card to Apple pay, Venmo, or other electronic payment is how young adults spend.   All of this is made possible by having available cash.

As children get older and start driving, you may find it’s helpful to have another vehicle in the family.  This provides dependable transportation to get to sports, activities, and jobs and give parents a break from all that driving!  It’s amazing how aware young drivers may become on the cost of gas when they are responsible to contribute a portion of the costs.  Awareness is a formidable skill that is best learned by doing, just like handling cash.  Overtime an awareness of all costs is good and helps define perspective.  Be it a tank of gas or dining out with friends, raising young adults’ awareness helps enable better decision making in the long run.

Balancing a job through high school while playing soccer has helped my oldest gain a better appreciation for responsibility and time management.  Other benefits from a job include having excess cash that may be invested.  Where should one look to consider investing possibilities?  Social media is overflowing with really bad ideas yet is often the first place to learn more about investing.  That’s troubling on many levels, consider a better approach.

Before investing your money, regardless of your age, it’s important to have sufficient cash reserves.  For many, investing is exciting and getting started without a plan or strategy is often the case.  Not holding abundant cash reserves may be costly and require investments to be liquidated prematurely.  This may trigger taxes and transaction costs.  Worse, it interrupts the compounding your investments need which time makes possible.  Have the right amount of cash reserves set aside first.

Avoid opening an account via a slick app may encourage bad investing behavior.  Instead, consider opening a custodial account with your young investor.  Let them explore the costs of individual companies they like or consider owning all of them via an index fund or exchange traded fund.  Invest some monies and see what happens.  This approach has created a lot of valuable conversations between my son and I and helped introduce the concept of investing the right way from the start.

We all may benefit from having a good financial mentor regardless of our financial background or the lessons on money we learned from our parents.  If you’d like to learn more on how to talk to your kids about money and investing reach out below and we’d be happy to chat with you.

Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.

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