April is Financial Literacy Month, a chance to educate and empower individuals to enhance their financial well-being. And it’s never too early to start teaching your children on the importance of saving money for their future.
Starting Young
Leading by example ensures your kids see your saving habits in action. Before you get there, you first need to explain what savings are and the importance of saving, plus how money should be spent in general.
“A good way to explain this is by giving them an allowance,” said Tim Buggy, who serves as a financial advisor at Equitable Advisors, LLC. “An allowance is a great first step in teaching your children self-discipline, responsibility and organization. It begins to show them how to make purchases and how to save for bigger purchases.”
Kids may be gifted money for birthdays and holidays or earned from tasks like chores, so Donna Kline, senior financial advisor of HBKS Wealth Advisors, recommends teaching kids how much they should save, plus how much they can spend. “Every time a child earns or receives money, the thought of saving some (or donating some) is first. Then, it’s the idea of how much they can spend to enjoy their earnings or gift.”
Savings Habits for Teenagers
While credit cards might seem exciting and easy for teens to start using, parents should advise them to not spend more than what they have in the bank. Teenagers can rack up debt quickly, which will hurt their financial future. “Taking on some debt can be acceptable, such as student loans for college or trade school, but it should be taken on with the understanding that it is an investment in your future,” said Kline.
Another financial learning opportunity for teens who work part-time jobs is to show them the paycheck breakdown. Inform them about the different taxes that are withdrawn and how to save a certain amount from each paycheck. Help them open a checking account and show them how to use a debit card, plus track balances. Buggy said, “Your child may want to spend all the money they earn. That’s natural at this age. This is a good time to begin teaching kids to enjoy some of the money they make and encouraging them to put a portion aside to create a savings account.” Experts recommend 10% from each paycheck should be transferred to their savings account.
Kline also suggested that children with their own savings accounts are more likely to develop a stronger understanding of financial concepts and are better positioned to make informed decisions about their money in the future.
College Savings Habits
As teens enter college, it’s a good time to teach them about investing. Buggy recommends having them open a brokerage account, so they can buy some stocks with their parents’ or a financial advisor’s guidance. Account minimums vary between companies, but most of the thresholds are affordable.
Paul Fero, CEO of the North Districts Community Credit Union, suggested that college students continue to save 10% of their paychecks for the future, like buying a car or house, plus emergencies. “Avoid using credit cards where you can. They’re too easy to use, and not paying them off on time leads to high credit card debt.” He also strongly recommended avoiding late credit card payments due to the possibility of high fees and more financial trouble.
Fero said everyone should ask for their free annual credit report to help gauge credit card interest rates before a big purchase like a car. Lots of variables affect one’s credit score, like the timing of paying credit card statements. “If you do have to use a credit card, pay bills on schedule, and use it as few times as possible. Whatever your credit limit is, only spend one-third of it, which will help you boost your credit score.”
Post-College Saving Habits
Life after college certainly looks different, as your kids (now adults) will officially be entering their careers. It’s vital for them to start loan payments immediately. If employers offer 401K matching, encourage your kids to take advantage of this as soon as the benefit is available since this is free money for them. Experts say to continue the 10% savings from each paycheck to their savings account and even consider a side hustle to make extra income.
Focus on needs, not wants, to keep your kids in good financial health. Good habits will set up them up for the future.