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Many who make good decisions with their money were somehow influenced at a younger age. Parents can foster future millionaires, or miss the opportunity and run a greater risk of developing long term dependents.
I spoke to Lee Rogers, a fellow member in the Michigan JumpStart Coalition, a non-profit charged with bringing financial education to our youth. “Most kids aren’t learning what they need to in order to succeed financially in life, and parents are missing a perfect opportunity to help them learn”.
The summer break is an ideal time to help your children establish lifelong financial habits.
One of the best methods is to lead by example
Take your kids shopping and talk with them about why you stick to a budget. Compare prices, and demonstrate how to find bargains. Tell the importance of investing, and the power of starting early. Show them how you invest for retirement. Talk about college costs. If you are helping with their education and are investing into a 529 plan, show them how it works and what you might expect to get from it.
Use the Lemonade Stand and other entrepreneurial endeavors as a teaching moment
On my way home yesterday I saw a lemonade stand destined for losses. Yes, lemonade stands are born on the basis of profit. You take a very low cost ingredient, mix it into water, and fill it in a cup for a huge profit margin.
Rather than the typical folding card table with a scribbled picture taped to the front, this stand looked like a miniature street market vendor. Cute, but is it necessary? I went on-line when I got home, and that model cost upwards of $200. That takes a heck of a lot of glasses of lemonade to make a profit.
No matter how small the entrepreneurial endeavor your child might partake this summer, use it as a first rate lesson on making a profit. I’d even recommend going so far as to collect some of their earnings as cost of good sold, or even rent for equipment. It doesn’t have to be much, but it helps identify natural business processes.
Give children incentives to save their money
Steve uses an incentive similar to company 401k matching. “I match any portion of their earnings that they put into the bank account. Once in the bank, it’s deemed as long term money, to be used for college years. One child utilizes the match more than the other, but it gets them to save more than they would otherwise”. Some parents impose a mandatory savings rate between 20% and 40%.
Use allowance or chores to teach work ethics and financial reward
Some parents give an allowance as building a family unit, where they all share in the work and they all share in the bounty. I like to also offer opportunities for special jobs or home projects. You can pay children equally for a job well done, and other times pay them separately based on how much each child did. It shows them that there are different ways to get paid, demonstrating the advantage of a concerted team approach or individual commission.
Teach them the value of property, and the cost of replacing it
Joan told me a story about her son who ruined the flowers in her front garden. “I made him go to his piggy bank and take the money out to replace all the flowers. He hasn’t played in my flowers again.”
They are not too young to start investing
Jonathan explained how he gets his kids to appreciate investing. “I encourage them to invest their earnings into a Roth IRA, and then I give them some spending money in return. If investing in stocks, make it interesting or you’ll lose them. If they are into technology and games, look for stocks in that field. Compare a few different companies and decide which one makes the most sense.”
Instead of giving money as a gift for his kids or their friends, he gives stock. “I had my first brokerage account at age 13, you can’t start too early.”
James Studinger is the owner of JPStudinger Group, a Financial Advisor firm in Bloomfield Hills MI and author of Wealth Is a Choice and Vice Chair of the Michigan JumpStart Coalition. He offers securities and investment advisory services through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with JPStudinger Group. www.jpstudinger.com email to james@jpstudinger.com. 248-643-6550
