How to Raise a Kid You Won’t Have to Cut Off in 20 Years

Source: iStock

Today’s young people are more likely than previous generations to live with their parents, according to a 2017 analysis from the Pew Research Center. In 2016, 15 percent of 25- to 35-year-olds lived in their parents’ home, compared to 10 percent of Gen Xers in 2000.

Even when kids move out, it’s not uncommon for them to receive financial support from their parents. In fact, 62 percent of Americans age 50 and older gave a relative money in the last five years, with the largest sums often going to adult children, according to a 2017 Merrill Lynch retirement study.

Parents may not find those statistics encouraging, but the good news is there are ways to teach kids how to be financially responsible, and it involves raising the bar by asking kids to do more in the way of financial responsibilities. Studies have shown that when more is expected of a child (or anyone), they actually perform to that level of expectation. The same can be said of how they deal with money.

Don Roork, a Certified Financial Planner at AssetDynamics Wealth Management, has noticed a pattern with kids, adults and money. “Kids learn good money habits from just watching and being around their parents,” says Roork.

Roork also points out that money lessons aren’t always explicit verbal lectures on finance. “Kids watch mom and dad making good financial decisions, and voilà — the kids’ money behavior matches their parents’,” says Roork.

So when it comes to raising financially independent adults, it becomes clear that it’s important to start when they are kids. Here are some ways personal finance experts recommend easing your children — gently and kindly — into financial adulthood by weaning them from the family wallet.

Set expectations

As soon as your child begins asking for things like toys, restaurant meals or trips to the movie theater, they are ready to learn about the money it takes to support these wants. When a child expresses a desire for something beyond the basics, start the conversation then and there about how they’ll soon be responsible for these “luxury items.”

Of course, you don’t have to start charging them rent (not a bad idea, though), but you will want to follow up your expectations with actions.

For example, if your family goes out to eat, your child can pay for their meal or contribute to a portion of the bill. These expenses can be age appropriate and should increase over time as your child earns more money. They can start with things like snacks at the movies and move up to cellphone bills and car insurance.

Financial adviser Jamie Pomeroy of Financial Gusto says this should all start with communication: “Sitting down with your child and having a clear and frank conversation about who’s paying for what, can pay huge dividends.”

Another good exercise would be to show them prices on things they’ll need as adults, like a home or a car. Molding their expectations around what it takes to live will only help them down the road.

To drive this point home, Pomeroy suggests laying out a real plan designed to increase financial responsibility. “Make sure that you and your child are on the same page about what expenses they are responsible for, what you’ll continue to pay for (for now), and then introduce them to a budget to help them manage those expenses,” he says.

Create a reward system

Get-out-of-debt guru Dave Ramsey warns against giving kids an allowance and instead recommends that money given to a child should be tied to actions, like completing chores or other household projects. The idea is to get kids ready for the real world by emulating it with a system of compensation tied to work.

CFP Jeff Rose of Good Financial Cents says, “One of the first steps in teaching your kids financial independence is giving them responsibilities around the home that are both paid and unpaid.”

Ramsey is also a proponent of giving children the opportunity to earn more money in “commissions” when they find extra things to do or take initiative in solving problems around the house.

Teach them personal finance

Many kids are shocked when they get into the real world and finally begin grasping the finite nature of money. Mom and Dad spring for everything, so why would money ever run out?

Clint Haynes, CFP of NextGen Wealth, says there’s a fix for this. “Make it a point to sit down with your kids and show them what your budget looks like, how it works, and why it truly is the foundation to personal finance,” he says.

When your child asks for candy at the store, don’t deflect them with, “We don’t have the money.” Instead, let them know that the money you have available isn’t earmarked for candy, showing them how a budget works in real life.

Other lessons you can teach early on include those around saving, compound interest and even giving.

Brian Hanks, a CFP out of Idaho, has an experiment he urges his clients to conduct with their children once they are high school seniors. He suggests parents hand over their checkbook and have their kid cover all the family’s expenses for the entire school year.

“Paying a family’s bills is eye-opening, and your teen starts to develop new money habits,” Hanks says.

Let them earn real money

You can start by giving your kids an allowance that is tied to performance: completing chores, excelling in school, and having a good attitude can factor into their “compensation.” Be sure to enforce the association between what they do and how they are compensated. Once they can work legally, you can taper off their allowance.

Ed Snyder, CFP at Oaktree Financial Advisors, says children who have jobs will be more thoughtful about their spending and better with money in general. “Working will help them think through their spending and hopefully be more responsible,” he says.

Keep in mind kids don’t always have to wait until they are 16 to get a job. They can start a business or participate in gigs that allow kids under 16 to work with a permit, like modeling or acting.

Challenge them

Not only should your kids be responsible for expenses and make their own money, Eric Jansen of AspenCross Wealth Management says kids should be challenged in their money habits.

“Set up 90-day savings and spending challenges as a fun way to help them better understand and manage the trade-offs between spending money on what they want and what they need,” Jansen says.

No-spend or savings challenges are great ways to teach lessons about money while showing your child what they are capable of if they focus on their goals.

You can even create competitions among siblings, like seeing who can save the most money.

Trust the process

Sound like a lot of work? It is! Financial independence doesn’t happen overnight.

“Some of these [money] lessons may click sooner in some kids than in others — even within the same family,” says Snyder. “Don’t give up hope. … Just keep showing them good examples and teaching them good old-fashioned financial lessons.”

Be patient, be kind, and be confident that the lessons you are teaching them will serve them well into adulthood.

The post How to Raise a Kid You Won’t Have to Cut Off in 20 Years appeared first on MagnifyMoney.

What Should Your Teen Do With Their Summer Earnings

Source: iStock

According to a 2017 survey released by the National Financial Educators Council, 54% of respondents (all 18 years and older) said a course in money management in high school would benefit their lives. Another survey — the most recent from the Program for International Student Assessment — reports that only about 10% of U.S. 15-year-olds are proficient in personal finance matters, falling in the middle among the 15 countries studied. The message is clear: Young Americans need to learn more about money and managing it wisely. One way to start them off is giving them hands-on experience with their own money. Enter the summer job.

Having a summer job can be a good introduction to adulthood for many reasons: The discipline, submission to management, team work, and a regular paycheck are just a few of the things a teenager will get used to with their first summer job.

It’s also a good way to introduce kids to the real world of money. Though the money your teen earns is technically theirs, as a parent, you should use summer job earnings as an opportunity to help your kids form good habits with money. There’s no better time to show them the value of money than in the crucial years before they’ll be saddled with obligations like student loans, car notes, and mortgages.

Here are a few ways to make sure your teen will get the most out of their money-making experience that will keep them money savvy for years to come.

Pay their fair share

Once your teen begins making money, you’ll to want consider how they can begin to cover certain expenses. You’ll be tempted, no doubt, to let your teen keep their hard-earned money for themselves. Trust this process. If the goal is to raise money-smart kids who become even savvier adults, there will have to be simulations of the real world that include actually paying for things

If your teen uses the car, consider having them cover a portion or all of their car insurance bill. Another option is to have them contribute to their cellphone bill or even some of the Wi-Fi they use.

Having expenses is a real part of life, so it’s better to help them understand that now rather than later when ignorance isn’t so blissful.

If the thought of making your child pay for expenses bothers you, consider a different approach: Teach them about the costs of everyday life by asking them to cover their portion of a bill, but take that money and put it away for them. You can save up all that money and, as a nice gesture, give it to them when they need it most, like when they go away to college or finally leave the nest to launch out into the real world.

Open bank accounts

Source: iStock

While many families do not have access to or elect not to participate in the traditional banking system — it’s estimated that 27% of U.S. households are unbanked or underbanked — you’d ideally want to get your teen familiar with banks and how they work. Though check use has been on the decline since the mid-1990s, it’s still important for teens to learn how to write a check, along with keeping a checkbook register. Sure, this practice probably won’t last long, as electronic payments and money management apps continue to grow, but this approach gives your kids the gist of how to keep track of their cash flow.

While your teen has a bank account, you’ll also get them used to understanding how a debit card works. They’ll get familiar with how easy it is to swipe for things they want, yet how difficult it can be to replenish their account with the money they’re making at their job.

Finally, you’ll want to make sure that your teen opens a savings account. In most states, a person can open a bank account when they become 18. For younger teens, many banks have special teen or kid accounts that a child can share with their parents. Co-owned checking accounts can be opened as young as 13, while custodial savings accounts can be opened at any age.

Developing good habits around saving and managing money takes time and some getting used to. So using their summer earnings would be a perfect opportunity to get into the groove of budgeting for expenses and managing money through a bank account.

Set money goals

Once money starts to flow into your kid’s hands, seize the moment and get them to see the bigger picture. Summer money is great, but paying for life will take much more than what your teen earns from a few hours of work in a bike shop. Begin to show them the cost of things like college, cars, homes, and luxuries like vacations or hobbies.

Once you compare the costs with their summer job earnings, it should help them come to conclusions about how money works: The more you have, the more you can do. The idea is to inspire them to increase their earning potential with tools like education or savings to invest in income-producing assets.

Another result of these conversations could be your teen realizing they’ll want to start saving up for life sooner than later. They may decide to put away money for the purpose of paying for school or their first condo.

Ron Lieber, New York Times financial columnist and author of the book The Opposite of Spoiled, says parents should prompt their kids with an immediate goal like having a college fund. “The best thing to do is to use any earnings to begin a conversation with parents about college, if your teen plans on going,” Lieber says.

Lieber suggests questions to guide the conversation:

  • How much of your college expenses will be covered by parents versus the child?
  • How much have the parents saved for the child’s college expenses?
  • How much are kids/parents willing to borrow or spend out of their current income?

According to Lieber, “The answers to these questions may cause a teen to save everything, if they think it will help them avoid debt in their effort to attend their dream college.”

No matter how temporary their summer job is, you’d do well to use it as a springboard for more conversations about money. Whatever their long-term money goals are, it’s never a bad idea to start working toward them early on.

Learn compound interest

While your teen is making all of those big money goals, you could drive the point home with a lesson in compound interest. Using a compound interest calculator, you can show your teenager many scenarios where interest can either work for or against them.

Run scenarios around savings for big-ticket items versus financing them. The math will speak volumes:

*Example APRs are used. APR will vary on factors like individual credit score, loan amount, and bank requirements.

In the above scenario, you’d end up paying a total of $226,815 in interest. That same amount ($226,815) invested for 30 years with a moderate 3.5% return yields over $636,000!

Seeing these numbers in action should motivate your teen to start a savings habit that they will maintain throughout adulthood.

If they are really excited about the prospects of compound interest working on their behalf, encourage them to open their own IRA to begin investing themselves. This way, they’ll not only understand the theory of investing but also get hands-on experience with it. After all, the time value of money works even better when you’ve got more time. Investing as a teen could set the stage for copious returns later on in life.

Create a budget

Making money can be the fun, somewhat easy part of a summer job. Figuring out how to spend it can be difficult. Make your teen prioritize needs and wants by learning to create a budget. A good practice would be to have your teen make a list of things they’ll spend money on versus how much money they will bring in. You could also introduce them to a money-management app — here are some of the best ones.

This will help them understand the finite nature of money and how their current cash flow stacks up against their current earnings.

Have fun

According to Brian Hanks, a certified financial planner in Salt Lake City, “Don’t be concerned if your teen ‘blows’ a portion of their earnings on things you consider to be worthless.” Hanks goes on to say that it’s better to make money mistakes as a youngster: “Everyone needs to learn tough money lessons in life, and learning them as a teen when the consequences are relatively small can save bigger heartache down the road.”

A summer job should be fun and low-stress, but it can also be used as a learning experience that prepares your teen for the real world. If your teen turns out to be a terrible budgeter or extreme spendthrift, give them more than a summer to learn better ways. Remember, they’ll have the rest of their lives to continue grasping and mastering money concepts.

The post What Should Your Teen Do With Their Summer Earnings appeared first on MagnifyMoney.

Even 3-Year-Olds Know When You Owe Them

toddlers-know-when-you-owe-them

Perhaps we can all be grateful that toddlers aren’t professional debt collectors.

Hypothetically speaking, let’s say you’re in debt and someone sent a 3-year-old to your door. One glance at those large, innocent eyes looking up at you and asking you to settle up would probably send you running for your checkbook. I doubt you’d even attempt to negotiate your debt. You definitely wouldn’t slam any doors in their faces.

But watch out if a toddler ever wants to loan you something; you might just fall into accidental debt. A new study demonstrates that three-year-olds know when you owe them.

In order to get a true measure of indebtedness, a series of experiments was performed with resources a toddler might value most: stickers and toys. Markus Paulus at Ludwig-Maximilians-University of Munich, took three-year-olds and five-year-olds in groups ranging between 28 and 43 kids and had them participate in a sharing game. The toddlers were tested individually, and had to choose how many of their stickers they wanted to share with specific toy animals of different colors. The game was intentionally crafted so that the toddler would choose a favorite animal to share more stickers with. There were winners and losers. Sadly — if you can feel sorry for a toy — one toy animal only got one sticker or no stickers at all. Such is life.

Researchers leveled the toy animal playing field by showing the toddlers that each of the animals was actually IW (independently wealthy), with its own sticker collection. After adding them all up, kids were shown that each toy animal had the same number of stickers, so even the sad, disadvantaged animals balanced out to the same amount.

Then came time for payback. Suddenly, the toy animals were gifted with irresistible toys that would cause even the most disciplined three-year-olds to stop in their tracks, swoon and start to whine, er, pine — colorful balloons, oh-so-shiny marbles and coloring books graced each animal. Each animal had the same number and type of toys. For a few rounds, the toddlers were told to choose which animals they’d ask to share its alluring resources. Time and time again, the toddlers approached the animals to whom they had given the most stickers.

“At this age, expectations for reciprocity seem to develop, and these expectations start to affect children’s behavior,” Paulus told Credit.com.

If No One Sees It, It Never Happened

Interestingly, researchers then varied the study a little. This time, they had the animals leave the room before the toddlers decided how many stickers to share with each one. So, technically, the toy animals never “saw” when toddlers gave them preferential treatment or more stickers. But by age 3, their young minds already knew that a favor done without a happy recipient didn’t count in the favor bank. When it came time for the toddlers to hit up which animal they’d ask for toys, they no longer asked more from the animals to whom they’d given more stickers. They seemed to know the favor would never be recognized if it hadn’t been seen.

Why It Matters

“I think it really helps us to know how deeply wired we are for relatedness,” said child psychologist Dr. Bob Bartlett in White Plains, NY. From the moment a child is born, the little person relies on expectancies and patterns to navigate life, he said. Nursing mothers and their newborns often perform a “complicated dance” of relating and needing space through body posturing and eye contact, says Bartlett. “That becomes woven into the way we connect with other people as we go forward. So we’re really wired for a sense of expectancy.” Our first experiences of fairness and indebtedness shape our philosophies of meaningful relationships.

“From early on, our parents and caregivers help teach us what to expect from relationships — how sharing is undertaken, how others are thought about. They emerge and really take shape,” Bartlett continued. And we learn reciprocity as it is reinforced by our family and by larger communal settings such as preschool, he said.

It can be witnessed when a toddler’s sense of unfairness is spot on — as soon as they see another kid receive something they don’t have, says Dr. Bartlett. (Just hand an ice-cream cone to another toddler, and see what happens with yours.)  “Automatically a child will want what’s given to another,” Bartlett says. “It’s all based on our own need of wanting others to attend to us and give to us.”

And adorable toddlers certainly know how to gain credit in your heart.

Remember, modeling good financial habits can help your kids later in life. You can go here to learn about getting control of your money. And you can view a free snapshot of your credit report by enrolling in an account on Credit.com.

Image: Christopher Futcher

The post Even 3-Year-Olds Know When You Owe Them appeared first on Credit.com.

Why We Decided Not to Have Kids

debt_free_guys_two

With the legalization of same-sex marriage, queer couples have been solidifying relationships as fast as they can say “I do.” However, queer couples have familial considerations that, until June 2015, were like AstroTurf to grass.

Having children is not easy, financially or emotionally, and for older couples, the financial and emotional burden may be hard to overcome. That’s why we decided not to have children. We made this choice not because we don’t like kids but because of the time and place in which we were born.

In part, because our relationship experiences were five to 10 years behind our straight peers, we settled down about 10 years later. When our relationship evolved to a point where we could think about supporting kids, we felt it was too late.

At the time, we already had $51,000 in credit card debt. We knew we needed to pay that off as quickly as possible and then focus on saving for retirement. We couldn’t do that to the degree we felt necessary while giving our kids the life we felt they deserved.

The Financial Costs of Kids

According to the U.S. Department of Agriculture, the average cost to raise a kid until 18 as of 2013, the most recent year for which data was available, was $245,340. When we considered these costs in addition to our credit card debt and retirement needs, we were overwhelmed.

And when we considered the Human Rights Campaign’s estimate that the cost for a gay couple to have a domestic adoption ranges between $5,000 and $40,000, the prospects of having kids seemed downright impossible — and even selfish. We didn’t feel we could give our kids the life they deserved without sacrificing our retirement. If we did the latter, we feared we’d be a burden if we got to a point where we could no longer care for ourselves.

The Emotional Costs of Kids

Had we been more emotionally and financially mature when we were younger, having kids may have been more viable. Having suffered our financial insecurity, we didn’t want to put ourselves in a precarious position again.

We’ve shared many times that one of our best financial decisions was figuring out what we most want in life. This gave us the focus to pay off our credit card debt and helped us stay out of it. One of those two wants is being prepared for retirement.

Knowing what we do now, we would be on an emotional roller coaster, stressed about our retirement, while raising our kids. The expectations (read: costs) for children are high in dwindling middle-class America. Our relatives once told us they spent $2,000 each on their two kids for six weeks of soccer camp. That doesn’t even factor in costs for the rest of that season or the fact that neither of those kids will ever become professional soccer players. Still very young, those kids will be lucky if they’re able to stay interested in soccer, much less good enough to receive a college scholarship.

Cynics will say we shouldn’t get caught up in the superficiality of raising kids today, but we know that’s easier said than done. It’s not socially acceptable to advise people to not have kids, and there’s often a stigma for couples who don’t. Some even make the decision not to have kids out to be selfish and self-serving.

For us, our concern was exacerbating the financial mistakes we made in our younger years and being a burden on our kids. When deciding whether or not to have kids, it’s important to remember your kids’ whole life — not just the day the stork brings them home.

[Editor’s Note: You can monitor your financial goals, like building a good credit score, each month on Credit.com.]

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More Money-Saving Reads:

Image Courtesy of David Auten & John Schneider

The post Why We Decided Not to Have Kids appeared first on Credit.com.

3 Money Lessons Your Kids Should Learn Before High School

kids_money

With three kids (one on the way — we adopted), and a couple of businesses, we’re quite the busy parents. Perhaps you can relate.

But no parent should be too busy to teach their children about money. Proper money management is an important skill to learn growing up, and if you think the education system is going to teach them everything they need to know, think again. Many of our schools don’t teach kids about money. Parents might not realize this, and they should so they can fill the gap.

There are a few financial lessons every parent should teach their kids before high school. If you have kids, which of these lessons are you currently teaching them?

1. Give Freely

It’s a simple but powerful lesson. Chick Moorman and Thomas Haller, for Parents.com, listed several ways children can learn to give: donating clothes, helping neighbors, creating a charity jar, and more.

Imagine for a moment that everyone gave to others in need out of their own free will. Imagine the kind of place the world would be. Imagine the people who wouldn’t go hungry, the lives that would be saved, and the relationships that would be formed.

There’s nothing wrong with working toward that ideal even if we know it will never be fully achieved. And, curiously, giving accomplishes so much for the giver just as it does for the receiver.

By teaching our children to give, we show them how to be content with what we have. Contentment is one of the best qualities of the finest people, but it’s also one of the most difficult qualities to acquire. That’s why it’s so important to teach our children how to give when they’re young.

Contentment goes a long way in someone’s financial life. It allows them to spend less on things that don’t matter and focus more on the important things in life: family, friends and meaningful work.

Giving also teaches children the value of selflessness, a quality mocked by much of our self-centered culture. Giving shows children how to think about others rather than themselves.

2. Save Wisely

Saving allows individuals to be self-sufficient. But it must be done in measured ways.

When you’re teaching your children to save, explain to them why they should be saving in the first place. Perhaps they want a particular toy they saw advertised. Explain to them how to save for the toy so they can purchase it.

You’re teaching your children how to plan when you teach them how to save. You’re teaching them how to think about the future, how to delay gratification, and how to achieve their goals.

That’s why teaching them to save wisely is so very important. Part of that is not just saving for things they enjoy, but to also save for emergencies. It’s not a bad idea to teach your older children about emergencies and why they should save for those.

3. Work Smartly

Working in a smart manner isn’t something many children are taught. Instead, they are taught to work hard. While working hard is very, very important, it’s only one part of working in a smart manner.

The other part of working in a smart manner is to work efficiently. Teach your children how to get more done in less time by batch-processing chores. For example, teach them that they can pull the weeds after mowing the lawn. Teach them to sweep the kitchen floor after doing the dishes.

Show your children how to set time limits for themselves to get chores done so they stay on task. If they allow themselves an infinite amount of time to get something done, they just might take that long to do so. Make it fun. Make it a game. Get them motivated!

Finally, show them how work results in money. We give our kids a commission, not an allowance. Why? Kids should learn that work results in earning income. They shouldn’t receive money for simply existing.

You might make a list of chores that are a part of their household responsibilities without pay, and then make a special list of chores that allow them to earn some money. Put it up on the refrigerator. Again, make it fun. Praise your children when they complete the chores.

The other great lesson this teaches children is to keep a to-do list. Task management is something that’s also often a neglected topic in schools, so teaching them how to work using a task list is a necessity that will help them calmly navigate all of the various responsibilities they have in life.

Bonus Tip: Be a good example to your children.

If you haven’t noticed (I’m sure you have), your children watch your every move.

This includes, of course, how you manage your money. They watch what you spend money on, how you spend your money and how you deal with difficult financial situations.

The best way to be a good example to your children is not to merely act like you have it all together, but to actually have it all together. Actually organize your finances online and put together a monthly budget. Invest regularly for your retirement. Reduce the interest you are paying on that debt by getting a balance transfer credit card and begin to pay down that debt as fast as you can. Whatever your financial next step is, take it.

As your children grow, you’ll be able to show them how you’re handling your money. They’ll learn these lessons from what they see you doing, but they’ll also learn as you explain to them how money works.

But remember, the best possible way to be a good example to your children is to actually become the kind of person you want your children to become. It needs to be genuine, so work on yourself.

Teach yourself to manage money better than ever before, be open with them about how you are investing your money, and if you have debt, be honest and explain the mistakes you’ve made and how you are fixing them. Show them how you track your credit by checking your credit scores for free on Credit.com and by getting your free annual credit reports. Your children will catch on and will hopefully follow your excellent example.

Teach these lessons to your children before high school, and they’re likely to excel beyond most of the peers and experience the rewards of their financial education for many years to come.

More Money-Saving Reads:

Image: Purestock

The post 3 Money Lessons Your Kids Should Learn Before High School appeared first on Credit.com.