Growing up I knew a lot of rich kids and they aren’t all the best with money. In fact, some of them are very bad with it.
Having money growing up does not mean you will have a lot as an adult (unless your parents are so wealthy, they are able to keep paying for you).
Instead, most kids who grow up to be well off were taught how to be financially savvy.
Here are the things to do for your kids so they start off on the right foot financially and the things to teach your kids that will change how they think about money.
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1. Open a 529 for your child
You can open one as soon as you have their social security number. A 529 is an account you open to save for their college. Money can grow in a 529 and not be taxed down the road if it’s used for college expenses.
The more that you can help them pay college upfront, the less debt they will start out with.
Every year for birthdays and holidays, we ask all family to contribute to their 529 accounts instead of sending money.
Tips to open a 529
- You can choose to open it in any state
- Check to see if your state allows 529 contributions as an income tax deduction.
- If not, New York is the highest rated and is the one I use.
2. Get them a credit card
Once my kids turn 16, they will have a credit card. Now, why would anyone ever want to do this?
Because it allows them to get established credit. If they try to get a loan in the future, they need good credit.
I can’t tell you how many people I know who weren’t able to get a house loan due to not having enough credit.
Put a low limit on it and make sure it is paid in full, on time. Use this card as a learning tool to show how to keep track of spending.
3. A hard-working high school job
I worked throughout high school as a hostess and a cashier. This gave me perspective. I realized very quickly how expensive life was and just how important a further degree would be.
A high school job is great motivation to get serious about your schooling and career path. A lot of high schoolers get into this phase of just wanting to be done and spend their time hanging out.
A job is a fantastic way to make sure they know what reality is before it’s too late. Whenever I didn’t want to go to my job, my mom would remind me that I would eventually have bills to pay. She would remind me that unless I worked at it, I would never make more money.
I realized very quickly that it was important to make more per hour.
4. Shadow people with great jobs
In addition to working during high school to see exactly what type of work you will get with that diploma, shadow people who make good money.
When I was in high school, I shadowed an accountant, a doctor, an engineer, a lawyer, a realtor and a businessperson.
My mom would always ask me how it was similar or different to my high school job. She would then enlighten me to how much they made per hour (and per year). A comparison of what I could make working full-time at my current job to what they were making was pretty motivating.
Additionally, I got to see how some jobs have more benefits, a better work environment and more flexibility to do some really fun work.
An extra benefit was that I was more prepared to pick a direction with my career.
I felt this was so useful to me that I wished I had done it more and branched out. I wish I shadowed a photographer, an electrician, a journalist, etc. to gain even more perspective on career choices.
5. Teach them how to invest (not just stocks)
There are so many ways to invest. Take every chance you get to teach your kids how money can create more money.
For example, show how investing in your home can make you more money. Invest in new windows that are better insulators. Show your kid how your energy bills change. Compare them and calculate the savings. To really make the lesson stick, use that extra savings on a fun trip.
Teach them to invest in themselves. Have them pick a hobby that builds skill. Teach them how to be handy and fix or build something together. Compare your DIY to the store-bought version to show them how their new skill saved them money. And will again and again.
My friend in college already had a wedding photography business by our freshman year. She worked on that hobby throughout high school and understood that by investing in that skill she could make money. By sophomore year, she was making a full-time income especially since most weddings are in summer.
And teach them about stocks, assets and equity and other ways to invest money. Money is complex. It isn’t enough to just have the basic chore/allowance system. That is great until they are about 10.
Learning that having extra money to invest allows you to make money without working is super appealing.
6. Teach them how to budget
Budgeting is a necessary life skill yet so many of us only learn this skill during adulthood. Involve your kid in household budgeting but not in a stressful way.
You want them to understand the basic concept of how to track money in, money needed for bills and how much you have left over.
Have them help try to increase the money left over. Any money they were able to help save, let them spend it on something fun for the family. Some ideas are they do chores that you would have hired out such as cutting the grass. They help with couponing. They babysit younger siblings so you can get some work done.
This not only allows them to learn and see the process but also gets them invested. They will want to sit there and help with the numbers if they want to know the result.
A bonus is the feeling of self-worth to contributing to the family. You will get to see your kid beam with delight when they know their work resulted in the trip to their favorite restaurant or to the toy store, etc.
7. Teach them how to budget for a big item
One important aspect of budgeting that is so important for being financially savvy is knowing how to save over time. Most of life is knowing how to budget in this way. It can prevent credit card debt and just make you smarter on your purchases in general.
Have your kid pick a big-ticket item that they really want. Then make a plan on how much they will put away each week to be able to buy it on a certain date. Now work on a plan for them to make that money.
This is great for a high school student who also has living costs such as gas money or date money. They have to balance and pick and choose their expenses so they stay within budget.
8. Teach them to avoid debt at all costs
Whatever you do, do not let them get into debt if you can at all avoid this.
Specifically college debt unless you are 100% certain the major they picked will allow them to pay it off in a reasonable time.
I know so many people who will never get out of debt due to student loans. They can’t afford to buy a house or start a family. Some who do start a family can’t stay home with their kid simply because of the student debt. A decision they made at 18.
Choosing a career path with money in mind is such an important conversation with your kid. It is also another great reason to really shadow a lot of jobs. College isn’t the only way to have a great career and if done improperly it could ruin your financial future.
Tips to avoid college debt
- Pick your major wisely
- Consider price when picking your school
- Take gen eds at a community college
- Pay as much up as you can up front
- Apply for scholarships and grants every year
- Work during college (such as a photographer in the summers)
Pursue raising financially-savvy kids Today
By the time your kid graduates high school, they need to be money savvy. You want them to make smart decisions because every decision changes their financial future for years to come.
A simple allowance is a great start, but it won’t teach them the complexity of real finances. So be sure to update your money lessons as your kid grows with my tips listed in this post.
How are you teaching your kids to be money savvy? Please share your ideas in the comments!
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