Monetary transactions look much different than they did when we were kids. Today, consumers pay for goods and services with the swipe of a card or a tap on an app. There are still a few cases when a check is appropriate, or cash is easier, but traditional payment methods are no longer the norm.
As kids watch parents spend money or shop online, they notice things continually showing up on their doorsteps without visiting a store. The introduction of virtual payment methods has led to a gap in financial literacy in children, which may be a factor in today’s young adults incurring record levels of student loans with little to no idea of the impact their monthly payment will have on their budget. As parents, we play a critical role in teaching our children about money – especially in our virtual environment.
Begin Teaching Kids About Money Early
We recommend beginning to have conversations with your children about the concept of money at a young age. Buying ice cream, toys, movie tickets, and other fun experiences present excellent opportunities for you to share with your children about the costs associated with goods and services. Although challenging, it can also be important to start talking to kids about adult expenses such as a mortgage, utilities, bills, and other living expenses. Some level of transparency in these areas will help your children to have a better understanding of these topics later in life.
A regular allowance can also help little ones begin to understand how saving and spending money works. The next step is to consider opening a savings account and having your child tag along to a bank to make deposits or engaging with the account online. Many financial institutions have savings programs specifically designed for children, which may be a good fit for your situation.
- Talk about money when your kids are young
- Be transparent (as you feel comfortable) about adult expenses like a mortgage
- Help them sign up for a savings account
Financial Literacy in Young Adults
As young adults begin to take on more serious jobs and earn income from employers, take the time to explain to them what happens to their paycheck before and after taxes. Many young adults do not realize how big of a bite taxes take out of their paycheck, and it can be an unwelcome surprise when they receive their first paycheck. We also recommend encouraging your children to have conversations with their employers about retirement savings, health savings, and insurance if these benefits are offered by the employer.
Having a better understanding of their actual income will help your children avoid credit card debt and budget properly for the impact taxes will have on their income. Encouraging them to develop a monthly or weekly budget based on their net pay will help them understand how quickly their paycheck can be used up. Be sure to list out all expenses such as rent, food, car loan payment, etc.
While working on a budget, encourage your children to think about future purchases they may want to make, like a new bicycle or vehicle, and add areas to save for those larger expenses. Encourage them to set up an automatic transfer of a portion of their paycheck to go directly into personal savings and/or a retirement account.
- Talk to your kids about taxes
- Teach your kids to use their income well through budgeting
- Encourage them to plan for future expenses, like college
As society moves further away from handling physical money, financial education is crucial at younger ages. Financial education starts early and establishes a set of crucial life-long skills that can keep children out of the debt trap so many adults face today.
At Anderson ZurMuehlen, we know the task of teaching financial literacy can feel daunting. Our team of experts is available to answer any questions you may have and have additional helpful resources available at your request. Please reach out to us for more details!
Investment advisory services are offered through Avantax Planning PartnersSM. Insurance services offered through licensed agents of Avantax Planning Partners. 3200 Olympus Blvd., Suite 100, Dallas, TX75019. The Avantax entities are independent of and unrelated to Anderson ZurMuehlen.