Our annual family BBQ which took place at the end of August is more than just a chance to enjoy delicious food and the company of BSW colleagues and their families. It has become a tradition and celebration of our community and a reminder of the values we stand for. As we gather around delicious food, share stories, and enjoy the sunny Colorado weather, it is also an opportunity to reflect on the importance of preparing the next generation for the future.
Just as we pass down family recipes and traditions, we believe there is a golden opportunity to impart essential skills for financial success later in life. In this blog post, we will explore practical ways to introduce kids and teens to the fundamentals of personal finance: From budgeting and saving to investing and planning. Join us, along with our esteemed Advisors Julie Martinez, Ben Weaver, and Eric Davis as we explore how to make financial literacy a part of your family’s tradition, equipping the next generation with the tools they need to build not only a secure and prosperous future, but also a healthy relationship with money.
When is the Right Time to Start Teaching Kids about Money?
The journey to financial literacy can begin earlier than you might think. “In my opinion, kids are never too young to start learning about money as long as the conversation is tailored to their age and competency. Providing children with an understanding of how money works and that it comes with trade-offs can start as early as 3 or 4 years old”, says Eric. “Starting early with a small allowance can give kids an independent decision to spend it or save it, but in either case, it can begin to instill an awareness about the value of money and the time it may take to accumulate larger sums,” as Ben further states.
Children have an innate curiosity and can absorb the basic language of investing at an early age. Julie’s approach involves brief meetings designed to develop a relationship while offering simple lessons on investing. These sessions create a safe space for kids to share their thoughts and ask questions. When kids understand concepts like budgeting, saving, and investing, they feel empowered and build a solid foundation that can reduce the risk of poor financial choices later in life.
Learning Through Experience: The Value of Financial Mistakes
As Warren Buffett wisely said, “We all make mistakes. If you can’t make mistakes, you can’t make decisions.” This rings true not just for adults, but also for children and teenagers. Julie believes in the importance of allowing kids to make financial mistakes early in life to provide them with the opportunity to fail in a safe environment while learning invaluable lessons to carry into their adulthood. “We need to empower kids with decisions which inevitably may lead to financial blunders,” Eric emphasizes. Instead of rushing in as adults to prevent a mistake, we can turn these moments into learning experiences that help children connect their choices – both good and bad – to their initial intentions. Ben also believes in the lasting effect such lessons can have: “If we give children a ramp to develop experiences with limited ramifications, they will be more prepared when big decisions inevitably come up later in life.”
Breaking the Money Taboo: Dinner Table Discussions
While money discussions might be considered taboo in our culture, avoiding this topic can negatively impact children’s financial understanding. Here are four tips for engaging in healthy money talk:
- Use real-life situations: Involve your children in everyday financial decisions like grocery shopping or budgeting for a family outing.
- Encourage questions: Create an environment where kids feel comfortable asking questions without judgment.
- Model good habits: Demonstrate healthy money habits in your own life.
- Teach goal setting: Help your child set savings goals for things they want to buy.
In addition to financial literacy, Ben believes that there is also an opportunity for education around what the family’s values are. Often, this occurs day after day around the dinner table where children closely observe their parents’ actions and decisions. What families prioritize varies from one to another, whether it is the latest clothes, cars, vacation, experiences, or philanthropy. As adults we can cultivate awareness of our relationship with money, recognizing that we often pass down our financial beliefs without realizing it. Rather than assuming our children will naturally adopt good money habits, Eric believes in the advantages of having open conversations.
Practical Tools for Financial Success
Investment Accounts for Minors
- UTMAs/UGMAs: In our opinion, UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act) Accounts are a great way to open an account on behalf of a child until they reach the age of majority. These investment accounts are more accessible than ever and can empower children to make their own investment choices where appropriate.
- Custodial Roth IRAs: Parents can set up a custodial Roth IRA for a child with W2 income. Business owners who employ their children in the family’s business often take advantage of this strategy to allow maximum time for tax-free growth. CPAs typically help decide if and how much can be contributed.
Building Credit Responsibly
Although it seems counterintuitive, and most parents do not want to expose their children to debt, helping your kids establish a healthy credit score will help set them up for success in early adulthood so they can independently apply for an apartment rental, a car loan, or a mortgage.
Here is how: Consider having your teenager get their own credit card before they start college. We suggest a credit limit for first-time users between $500 and $1,000 depending on age and ability to pay. Let your teen assume responsibility, leverage technology to track transactions, and pay off the balance on time. Note: If there is a history of substance abuse or other behavioral issues, parents might want to choose a lower limit and watch transactions closely.
Mastering Budget Basics
Teaching budgeting to young adults can be challenging, especially as they strive for independence. To engage your teen in learning money management, start by letting them manage a specific budget item they care about. Sports or school supplies are great examples. Start by allocating a lump sum to their checking account for this purpose and involve your teen in planning and tracking expenses. Allow them to manage their budget independently and make their own decisions while offering guidance when asked. This approach allows teens to discover their own financial management style and learn from real-life experiences such as overspending. Avoid stepping in to fix minor mistakes, as natural consequences can be valuable learning lessons. Over time, this approach can help build a solid foundation for financial independence and decision-making.
Building a Legacy of Financial Literacy
We hope you enjoyed this blog post as we embarked on a journey that began with our BSW annual family BBQ, an event that brings us joy, highlights the importance of community and tradition, and also led us to reflect on the vital role of financial education in shaping our children’s future. By incorporating financial literacy into family traditions, engaging in learning experiences and discussing money openly, we hope to equip the next generation with the skills they need to manage money effectively, make informed decisions, and build a secure future. We believe embracing these practices not only fosters financial responsibility but also empowers our children to navigate their financial journeys with confidence. As we continue to celebrate and strengthen our community, let us also commit to passing on these essential skills to ensure that money management skills become second nature for the next generation.
What steps will you take today to instill these valuable lessons in your family?
