Children who learn the importance of handling money responsibly at a young age are much better prepared to manage money independently once they are grown. That statement makes sense on the surface and sounds like a worthy goal for parents to teach their children about money. The challenge is:  How to do that? Well, a first step toward teaching children about money is to set a good example. Children learn a great deal from observation of adults, especially their parents.  But what if we as parents aren’t doing such a great job in handling our own affairs?  What are some basic tenets of sound, responsible handling of money?  Here are some thoughts for your consideration.

First, let’s talk about saving.  As adults, we simply must learn to live on less than we earn and save regularly for our future.  Most experts agree that saving 10 – 20 percent of our income will go a long way toward building a nest egg that can provide for our long term future. A foundational goal should be to establish a minimum of three to six months’ worth of after tax living expenses held in a readily available cash reserve form.   This amount will cover most of life’s little emergencies that always seem to present themselves at the most inopportune times. Sadly, for many Americans, handling even a $500 or $1000 emergency would be a problem.

If saving 10 -20 percent of your income seems daunting, try starting with a dollar or two, but just start.  Start with a goal to save one percent of your income.  When you master saving one percent, set a new goal and go for two or three percent of your income.  Keep going until you reach savings levels that will meaningfully impact your chances for a comfortable, secure future.  Once you have started the habit, teach it to your kids. For very small children, a piggy bank will work fine. For older children, a savings account can be a valuable teaching tool.  Every time they get any money from any source, talk to them about setting aside a portion in their savings.  Talk to them about your own commitment to regular saving.  Teach them by example.

If your employer offers a retirement plan such as a 401(k) or 403(b) plan, enroll in the plan as soon as you are eligible.  If the employer offers matching funds, set a goal to at least contribute enough to qualify for the full match.  This is free money that you usually can’t access otherwise. Why not get your share?  Set a goal to maximize your contribution to the limits of the plan.  When your plan account statements come in, use them as a conversation starter and teaching tool to show your children that you are practicing what you preach and saving regularly.

Once you have established adequate cash reserves and are contributing to your company’s retirement plan, you may be ready to consider other savings vehicles and investment options.  This is a good time to begin a relationship with an experienced financial advisor. Get help in choosing investments that are right for your individual situation.  Just as with your retirement plan account statements, use the account reports as a conversation starter and teaching tool with your children.

When your children have developed the savings habit and have accumulated enough to consider investing some of their savings, help them open an investment account so that they can follow the progress of their own investments.  A diversified mutual fund might be a great way to start.  Get them involved and excited.  Another option is to choose a company that is doing things they are interested in and buy a share or two of stock for them to own and follow.  A trip to Disney World may take on new meaning if they own Disney stock.  Watching a movie on Netflix may be more interesting if they own a part of the company.

When you are ready to think about planning for your children’s future education, consider using special savings accounts such as 529 plans as the saving vehicle. A 529 plan can offer opportunities for the extended family of grandparents, aunts, uncles, and friends to make contributions to the plan as gifts for special occasions such as birthdays, Christmas, etc.  Again, teaching a child about saving for a specific goal, such as their education, and sharing progress reports over time can be a valuable learning experience.

In addition to your developing a relationship with a Financial Advisor, get your child involved in that conversation as well.  Your advisor may have experience in teaching young people about money and may even have resources that would be helpful to you.  You will likely need other advisors and financial service providers in your life.  Why not allow your children to meet your banker, lawyer, and insurance agent. Each interaction provides a teaching opportunity and keeps the lines of communication open as they grow up and gradually need to build their own professional advisory team.  If you set the right example, growing your children into financially responsible adults while living a financially secure life is within reach.  Go for it!

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