Generation Transfer
Posted by Steve
As children grow into adults, there are many skills that are
important for them to learn. These ‘life skills’ are not often taught
in schools or through other educational avenues available to kids and
teens, so it becomes another responsibility of the parents,
grandparents, aunts and uncles to teach kids accountability, the
value of hard work, the importance of individual success. Before they
become fully independent, young adults need to learn especially how
to manage their personal finances.
The earlier the individual learns solid personal financial
practices and commits to investing, the more financially sound that
individual will be in the future. Responsible investing is the direct
result of understanding how money works and it’s vital that we take
the time to educate the younger ones we love how to handle this
correctly so that they avoid common pitfalls – probably the
same ones you and I made when we were younger!
One useful way to productively teach responsible investing and
personal money management is by creating a workbook based on the five
topics discussed below. Of course, the depth of teaching is up to you
and it should be relative to the student’s age, but these lessons are
designed to teach the basics of financial responsibility to anyone of
any age.
Lessons for Gaining Financial Responsibility
- Establish and keep an accurate budget. This may be
among the biggest challenges for young adults – even for our
nation’s population in general. Excessive spending is rampant, and
many people feel powerless in the face of rising debt, but debt has
a lasting and negative impact on a person’s future savings and their
current and future lifestyle. Debt causes unnecessary stress for the
individual and it can damage close relationships and trust. Notice I
said to establish and keep an ‘accurate’ budget. An accurate budget
is sometimes the hardest of all because most of use live day-to-day
and don’t spend a lot of time really analyzing where each dollar is
spent. Plus, for a budget to be realistic, it must include regular
and consistent efforts toward investing. Long ago, they told people
to ‘pay yourself first’. This meant to set aside money for you –
that’s investing. Before your young adult starts paying any regular
bills, they should understand that they have to make enough money to
pay themselves first so that that money is available for the future.
This teaches your young adult (indeed, this works at any age) to
live off less than they actually earn, and thus, to always be
building wealth. Help your young adult set up a monthly budget for
everything they regularly spend money on. One technique you can use
to help your young adult see this is to help them set up at least
two accounts: one for spending and one for saving for later. They
can proceed to pay for things on their budget with the account
designated for spending and watch the account for saving grow. - Get financially organized. Keeping all important
financial documents in systematic order can be done in a variety of
ways, so it’s important to find the one that works for your young
adult. Help them set up and keep their financial documents in a
filing drawer or cabinet, or in a digital filing system when they
are young. As young adults practice this fundamental skill, it will
help them easily locate papers they need now and in the future. When
it comes time to do taxes, they’ll be able to easily access the
documents they need. Staying organized is one of those good habits
that can save a lot of time and reduce stress as they move into
adulthood.
- Consolidate debt and destroy all credit cards. Many
credit card companies and loan agencies made their early fortunes on
18-year-old kids fresh out of high school as they headed into
college or their first jobs. These young adults were ignorant of how
credit cards and loans work, and there are countless stories
(perhaps you were a victim as well) of young adults getting access
to plastic and running up enough debt to bury them. A proper
education can help your young adult avoid these devastating
financial situations. Teach your youngsters the proper meaning of
credit cards and loans. Instruct them to be wise and prudent when
making large (and small!) purchases. Show them how interest rates
can either be their friend or their enemy. This education will save
them future headaches, sleepless nights, damaged marriages, and
more, and it will show them how to take advantage of other financial
opportunities.
- Know your credit score. Early in my own career, when I
worked as a paralegal helping individuals try to restore their
credit scores, I learned what an important thing your credit score
is. I spoke with over 40,000 individual Americans who had hammered
their credit with unwise spending habits. By the time they came to
me, it was late and they were trying to purchase a badly needed
vehicle to get to work or a new house for their children.
Regrettably, with a sub-prime credit score, you can barely finance
an apple, let alone an automobile. So, teach your kids how the
credit score system works. For information, check out common
websites like www.myfico.com. - Protect your identity from being stolen. Identity
theft is the fastest growing crime in the world right now and it can
be one of the most personally devastating occurrences that a young
adult can experience. When I was in college, one of my best friends
had her identity stolen by unwarily stating her social security
number. The person who heard that number was able to drain her bank
account and leave her stranded far from home with little more than
the clothes on her back by that afternoon! Because her identity had
been stolen, she had to drop out of school, move in with friends,
and work two jobs for years until she finally recovered all that
she’d lost. By keeping her social security number to herself, she
could have avoided this ordeal. Teach your youngsters to examine
their financial records and shred anything that may reveal clues as
to their identity to someone rooting through the trash. Show them
how to safely purchase items online, and how to be wary of luring
e-mails that fall into their in boxes. Teach them to check their
accounts regularly for any sign of misuse or abuse and to call their
financial institutions when anything that seems odd occurs.
Money can be a powerful resource when it’s managed responsibly but
without the proper understanding and tools, your young adult can face
serious financial disasters. Remember that better understanding and a
richer education leads to more informed decision making down the
road. Some financial stress is inevitable, but your young adult will
be able to think their way through it and make smart decisions when
they are armed with the right information.
You can find more information on managing risk at our website. If
you have a question about this blog post or want us to examine a
particular topic in the future, please let
us know.
Filed Under: Retirement, Risk Management