According to a recent Charles Schwab Financial Services survey of 1000 teenagers between the ages of 13 and 18, the average teenager believes that they will earn an annual salary of $145,000 a year. Teenage boys believe that they will earn an annual salary of $173,000 while girls believe they will earn an annual salary of $114,000. This despite the fact that the average worker in the US earns about $40,000 a year today.
My parents played a major part in my financial education by teaching me many basic but crucial lessons. Whether you’ve never done these things or you’ve learned your lessons the hard way, let your kids benefit from your financial knowledge by passing on as much as you can from an early age. Repeat these lessons for your kids as often as you can so they’ll stick.
1. Open savings accounts for your kids and make them a part of the saving process: If you’re a kid, giving birthday and allowance money to your parents to put into your savings account is no fun if you never see that money again. Show your kids their monthly bank statements. Teach them how to read the statements and show them the interest they’re earning. By making the process interactive, your kids will feel like they have more autonomy and responsibility, which will make saving more fun and appealing.
2. Teach both girls and boys about money and how to make it, save it, and invest it for themselves: In many families, the greater financial burden (if not all of it) still falls on the man, which means that it’s easy for a girl to grow up feeling like money isn’t something she needs to learn about. Even though I grew up always assuming that I would work, I also assumed for many years that it would be a man who would eventually bring me real financial security. It’s not that I was a gold digger–it’s that my dad was the main breadwinner and money manager in my house growing up. I never learned more than the bare bones of personal finance and I was never steered towards a lucrative profession. Once I acknowledged that I, and I alone, was responsible for my financial situation, with a little bit of initiative I was able to greatly increase my knowledge of personal finance and put that knowledge to work. Don’t let your kids waste any time figuring out who is responsible for their financial futures.
3. Make them work for it: If your kids get an allowance, they shouldn’t get it just for existing–they should contribute to the household in ways appropriate to their age (I’m pretty sure I was a skilled duster by age five). But make sure the reward is high enough to make the work worth it–even when you’re flat broke, ten cents isn’t a good incentive because you can’t even come close to buying anything with it. It’s also a good idea to separate the chores that can earn money from the ones that are required to contribute to the household. Basic tasks should be completed no matter what (if yours is a chore-doing household). Special jobs that go above and beyond everyday needs are good candidates for pay. In addition to not teaching your kids that all work should be compensated (because in the real world, no one pays you to vacuum your own living room), you’ll also be encouraging them to think up creative ways to earn money and help others.
4. Help them with their homework, or find someone else who can: Teach your kids that an education is the best way to increase their earning potential (but don’t make school all about money, of course). Not all parents have the educational background to help their kids with their math homework, but you can still teach them that school is a major priority by holding high standards for their achievement, finding them help when they need it, and participating in their school lives by attending awards ceremonies and attending parent-teacher conferences. If your work schedule prohibits these things, find other ways to be involved, like scheduling phone conferences with a teachers or sending cupcakes for class parties.
5. Don’t buy them everything they want: If you do, when they’re adults, they’ll expect to have everything they want, which will either land them in debt or turn them into workaholics. Because my mom always made me pick my favorite few items when we went shopping for clothes, I still have the habit to this day–and I don’t miss any of the stuff I didn’t buy.
6. Teach them that if they don’t have the money for it right now, they can’t really afford it: Repeat this phrase to your kids any time a relevant situation presents itself. When you’re watching TV and you see an ad for a rent-to-own furniture store, tell your kids why this is a bad idea. When you see those catchy MasterCard ads, tell them that you’re supposed to save up for special occasions, not charge them to your credit card. Also, be sure to explain to them what happens if you only make the minimum payment on your credit card each month and why you should always pay your balance in full before the due date.
7. Encourage them to get part-time/summer jobs: Getting that first job can be scary, so go with your child to the mall and have him ask for applications at all the stores he would consider working in (but don’t go into the store with him). Or, if you’re well-connected, set him up with some informational interviews that could lead to a summer job or internship in a corporate office. Help him fill out the applications, prepare for likely interview questions, and return the completed applications. A job will not only help your child learn the value of money, it will also make him eligible for an IRA and help prepare him for post-college life. Applying for jobs after school can be a lot less scary when you’re already applied for and held down jobs in the past.
8. Help your children open IRA’s the second they’re eligible: To be eligible for an IRA, your child will need to have taxable compensation. Not only will you be giving your child a major head start with all those extra years of compound interest, you’ll also be teaching her an invaluable skill: saving part of your income for the future.
9. Don’t pressure them into getting a more expensive education than you or they can afford: While some graduates find student loan debt manageable, for others it’s just like any other major debt–it stresses them out and limits their options. A solid education should actually decrease stress by broadening your child’s options and lowering her likelihood of having financial problems. If school debt is unavoidable (to get an undergraduate education), do your best to minimize it and to make sure your child understands what to expect when it’s time to repay the loans. If law school, med school, or an MBA are a part of the plan and you’re not footing the bill, pressuring your child could land her under a huge mountain of debt and in a field that she hates and eventually decides to get out of, thus greatly reducing her ability to repay the loans and leaving her worse off then when she started.
10. Set a good example: If your kids don’t see you following your own advice, they won’t take your suggestions seriously and they won’t learn the importance of managing money properly.
So many twenty and thirty somethings (and even older adults) don’t have their finances in order, but it doesn’t have to be that way. By teaching your kids these fundamentals of personal finance, they’ll be headed for a very bright future.