FINANCIAL SKILLS TO TEACH THE YOUNG PEOPLE IN YOUR LIFE: PART 2
GIVING A HAND UP
In our previous article, we suggested seven financial concepts the kids and teenagers in your life should know—everything from practical skills like balancing a checkbook to conceptual ideas like the difference between want and need. In this surely riveting sequel, we’ll explore eight more financial concepts and tips you can pass on to the youths around you. You never know what will stick, and many of these concepts can have a significant impact on an individual’s life.
UNDERSTAND BASIC INVESTMENT CONCEPTS.
While you’re not necessarily aiming to raise the next Warren Buffett (who started investing at age 11), familiarizing your kids or grandkids with basic terms and concepts, such as what stocks are and how and why people invest for retirement, can lay a firm foundation for future investing and comprehension—and perhaps dissuade them from blindly jumping onto the bandwagon in their own “GameStop” or “Dogecoin” scenario. Learning that you can get your money to work for you, rather than just working for money, is a compelling proposition.
BE FAMILIAR WITH THE USES OF DEBT AND LEVERAGE.
Debt is frequently vilified, but the reality is that debt itself is often not the source of one’s problems: how debt is managed can be. Credit is simply a measure of your financial reliability, an aspect of your reputation that assists others in determining your dependability. As appropriate for their age and experience, help your young people understand the merits and perils of loans and credit cards, and how having a credit limit up to a certain amount doesn’t mean that they can afford to use it all. Make sure they understand how neglecting their loan payments can besmirch their credit report and what that means in the grand scheme of things. But just as opportunities can be missed with low credit, so too can opportunities be gained with high credit: lower interest rates, higher credit lines, and more frequent acceptance rates.
LIVE WITHIN YOUR MEANS.
Continuing the topic of managing debt, a common problem amongst adults is overspending using credit cards and other types of leverage. According to Experian, the average American carries a credit card balance of $5,315, which is down, at least, from 2019’s $6,194. The headaches and heartaches of overwhelming debt are real, and it’s no wonder debt “gurus” like Dave Ramsey are so popular. When your young people get a job, help them divvy out expenses by breaking down what they need, what they want, and when and how they will fund those things. Budgeting and planning ahead for expenditures are skills with a lifetime of utility, and learning to live within one’s means is critical for financial success.
EXPLORE CAREER OPTIONS.
In the last couple of years, the viability of certain college majors and programs has been under increasing scrutiny, with an emphasis on the probability—or improbability—of securing a relevant job sufficient to pay off the student loans for the degree. Many students don’t fully understand what their chosen job path entails and can become indecisive. According to a 2017 National Center for Education Statistics report, a third of students will change their major in the first three years of college. To head some of this off, give your children or grandchildren the opportunity to learn about different fields of study and, importantly, the different lifestyles those careers provide by introducing them to other people you know in those careers. Your kids might be able to interview them, or shadow them for a day, or may even get an internship opportunity. There is no commitment, no loss, and no requirement. Mentor your young people and be a sounding board as they think through their major or career choice, and help them find the happy medium between passion or interest and financial stability. Help them to understand that while money isn’t everything, they need to be realistic about the type of lifestyle their chosen career provides.
LEARN TO PUT YOURSELF OUT THERE.
Whether it’s for scholarships, colleges, or jobs, having the confidence to apply even for merits or positions that seem like a longshot can open doors never before considered. As they say, you miss 100% of the shots you don’t take. Applying for as much as possible also trains us how to face rejection and continue forward in spite of it. Even better, having options removes some of the high-stakes stress that comes with depending on getting a specific job or attending a particular school. Have your child follow up with emails, letters, or phone calls if appropriate, and always send a personalized thank you message to anyone whose efforts and consideration have provided them with money, awards, or a job. And who knows? That longshot could end up providing extra funds for school or a once-in-a-lifetime opportunity.
RECOGNIZE THAT TIME AND COMPOUNDING ARE YOUR BEST FRIENDS.
I broke down compounding in this article last month, but its message bears repeating, especially as it relates to young people with so much time ahead of them. Invest early and invest often, with money if possible; in education and learning by necessity. Given time to grow and compound, money can pay off big dividends in the future both at a practical level and for peace of mind. On the learning front, practice, which takes time, is the single-greatest ingredient of success—perhaps just shy of luck—no matter the field or situation. Investing in yourself consistently is the greatest investment you can ever make.
DON’T COMPARE YOURSELF TO OTHERS.
No matter your age or situation, there will always be a Mr. and Mrs. Jones next door. In middle school, peers might have the latest iteration of the iPhone or the newest game. In high school, whoever drives the coolest car is often envied. In college, those who get free rides or will graduate debt-free and with a guaranteed job might seem like lottery winners. Comparing oneself to others—the things they have and problems they don’t have—is a surefire way to grow resentful, dissatisfied, and depressed. Money is not a solution to this; changing perspectives is. Someone will always come along who seems to have it better, and that’s okay. Teach kids to make the best of their life without concern for how others live theirs. They captain different ships, and someone always has a bigger boat. Your youth may not command the weather nor the waves, and their fellow sailors might steer larger vessels, but it’s ultimately up to them how they navigate the seas of life. Going in with an attitude of positivity, gratitude, and determination will make the experience that much better.
KNOW THAT IT’S OKAY TO SPEND MONEY FOR FUN.
The preceding advice isn’t meant to encourage a dull, restrictive life. You don’t need permission to enjoy yourself a little. Much on this list and its earlier counterpart may seem daunting, heavy, or worrisome. But money is just a tool. As my dad always says, “Take care of your tools and they’ll take care of you.” Sometimes that means using money to enjoy yourself, and that holds just as true for the part-time worker saving up for college as it does for the retiree. Teach your kids and grandkids that it’s okay to reward themselves now and then, but to be mindful about it. There’s a lot of financial pressure looming over a young person’s head, especially as they near the age of cars, insurance, rent, and college. While it pays to be prudent, your child will also benefit from a reward once in a while, especially if it is the result of exercising discipline and diligence.
A GIFT THAT KEEPS GIVING
Kids and teenagers are sponges. Providing guidance to them can change the course of their lives for the better and can even have generational impacts. Sometimes it starts with a single conversation, and sometimes it’s a matter of offering young people opportunities. Regardless of the method, investing in their education and learning, especially when it comes to navigating through sometimes-murky financial concepts, almost guarantees a worthwhile return—for you and for them.
If you know a parent, grandparent, or guardian who could benefit from these tips, please feel free to forward this article to them. Know that Day Hagan is always happy to answer any questions you may have.
Best,
Natalie Brown, CFP®
Director of Client Services
Day Hagan Private Wealth
—Written 8.24.2021.
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