How to Set Your Teenagers Up for a Solid Financial Future
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If you’re looking to grow your net worth, one of the most important factors is the length of time you spend working towards that goal. How many times have you thought, “I wish I had saved more when I was younger,” or “I should have started saving at an earlier age?” When you’re young, you’re not usually worried about how you’ll build wealth, you just assume it will happen somewhat naturally once you enter the working world. It may be too late for you to go back in time and make different choices but it’s not too late for your teenagers, who are probably just starting to earn and spend money. When it comes to teaching kids about money, here are some great ideas that can help you help your teenagers start their financial lives on the right foot.
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Pretend you’re the government. Your kids are probably in a very low tax bracket at the moment. However, in a few years when they land salaried jobs, they’ll be giving a lot more of their paycheck to the government in the form of taxes. That said, why not get them used to the idea of parting with more of their paycheck by imposing a forced savings. They can pay you the 10 percent or 15 percent that they’ll have to pay the government in a few years and have you put it in a savings account for them to use down the line. Or, you can work together to put an investment plan in place by reading some investment books or articles together and learning about the companies or mutual funds they choose to invest in. Either way, the habit of saving a portion of everything your child earns is a great one to develop early on.
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Fund an IRA for your kids. Your first priority should obviously be saving for your retirement and, if you’re fortunate enough to have more money to save, starting college funds for your kids. This will help them graduate with little to no student debt and help their finances immensely. However, if your teens are earning income, another idea may be to add money to an IRA for them. Instead of birthday and holiday gifts or even instead of gas money every now and then, put that money towards their retirement and let compounding interest work in their favor. Speaking of which…
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Show them the power of compounding interest. Kids don’t usually learn about compounding interest in school so make sure you don’t let your teens miss this important lesson. Even someone with little interest in saving and investing should be pretty impressed by the fact that $1,000 can turn into almost $2,000 in 10 years if it earns 8 percent in annual interest without any additional savings on his part. Teaching your kids how their money can earn money for them should be a good motivator for saving now. They may want to work less down the road or just give themselves the option to pursue any opportunity life may present them with, whether it’s traveling abroad, moving to a new city or starting a business. Plus, seeing their money grow should over time should underscore the importance of always finding a way to tuck away some of their paycheck for their future selves.
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