Teaching financial independence to young people is more important now than ever. Having a financial plan in place is of the utmost importance as we navigate a world that is rapidly changing in every aspect. Financial independence can also create a sense of stability and reduce future stress. The next generation will forever be impacted by the decisions that we make and the lessons that we teach them today. It is important to give them the necessary tools to thrive and have the best fighting chance possible to be successful. Understanding financial independence can be difficult for adults, therefore teaching it to children and young adults can seem like an impossible challenge to overcome. However, there’s no need to worry, we’ve got five tips to help you teach the next generation about financial planning and independence.
- Make sure that YOU understand finances– In order to be a skilled teacher of any subject, you must first make sure that you understand the information for yourself. It is important to examine your personal relationship with money before trying to get others to develop one of their own. Do you have a 401k? Do you invest in stocks? Do you know your debt to income ratio? These are just a few important questions to consider when thinking about your own financial security and knowledge.
- Teach them how to pay bills on time– It can be so easy to put off a bill payment, but the method of covering your eyes and hoping things will magically go away has never worked for anyone when it comes to bills. Collections calls and “last notice” letters won’t just disappear. Explaining the importance of credit and paying bills on time can be one of the most basic, yet most beneficial, aspects of financial independence. With reocurring and automatic payments being so readily available these days, it’s easier than ever to make sure all bills are paid on time.
- Start a 401(k) or other investment account– No matter the age of the audience, seeing money move can be exciting! If you are teaching a child about investing, it could be fun to help them start their very own investment account. There are a plethora of free trading tools available such as Robinhood and Stash. If your financial independence lesson is geared toward someone a little older, maybe just starting out in the workforce, explaining the importance of a 401(k) is crucial. Although, thinking about retiring as soon as you get your first real job may sound counterproductive, it is essential to explaining how taking a few dollars out of each paycheck can add up to thousands in the future.
- Teach the importance of saving– Allowances are a great way to help young people understand how to save. It could be simply helping a child set aside a certain amount of their allowance for their savings. If your child has been asking for a specific item such as a toy or video game, give them the opportunity to earn and save up the money themselves. This lesson in saving could also help them avoid impulse purchases. If they are saving for a high-ticket item remind them that if they buy two items from the Target dollar section, they will have $2 less going toward their big item, which means it will take even longer to get it. Teach them to ask questions like, “Am I really going to play with this toy or do I just think I want it because I see it?”
- Open a checking or dividend earning savings account– Just the act of having a bank account can create a huge sense of pride for a young person. This will create a sense of independence and responsibility. Let them log into the account periodically to have a visual of how their debits and credits impact how much money they can access. If you decide to open an interest earning savings account, give them the chance to see how earning interest helps them have more money. This lesson could bleed over into teaching about investment accounts as well.
It’s true, children are our future and it is our job to prepare them to become successful, well prepared adults. Teaching young people how to become financially independent, significantly increases their ability to move through the world with confidence and stability. The more we can teach the next generation about financial independence now, the better off they will be in the future and the more they will be able to instill in the generations that follow.