5 Tips For Putting Your Child on The Path of Financial Independence

the path to financial independence

the path to financial independence

Somewhere around your child’s 18th birthday, when he or she is just getting used to life on a college campus, credit card companies will begin making offers. By this point, it’s pretty late in the game to begin teaching your child about financial literacy, cyber safety, and investment strategies. Ideally, you would have started these lessons years ago. Still, there’s a big difference between “pretty late” and “too late,” so whether you’ve started or not, here’s what you need to keep in mind.

Know The Basics

Before opening the first credit card or checking account, your child should know the fundamentals of financial literacy. She probalby won’t need to be able to do an SEC filing but your kid should understand how to count money and make change, calculate simple interest, and create a budget. Studies show that 70 percent of young people don’t have these basic skills as they enter adulthood. That’s one of the major conributing factors to our national epidemic of personal debt. In the wrong hands, a checkbook or credit card can be a disaster that will linger for years, the first step on a nasty death-spiral of uncontrolled debt.

Stay Internet Safe

Getting deep in debt isn’t the only possible fallout from having access to money. Thanks to the Internet and e-commerce, thieves have access to an amazing array of ways to steal your money. If you go through bank statements carefully every month, you’ll have a good shot at identifying fraudulent or erroneous items. But not many adults do that–and even fewer young people. Instead, use LifeLock to send alerts for questionable transactions and inquiries to both the parent and child. This way you can make a habit out of checking accounts and turn the whole thing into a teachable moment.

Hope For The Best…

… but plan for the worst. Like the rest of us, your child has no idea of the problems that could come up in the future. That said, the life experience you’ve gathered over the years will give you a better chance of identifying patterns and protecting against the unknown. Start teaching your child how to save and budget for unforeseen issues (and don’t be shy about brushing up on those skills yourself).

Saving To Portfolio

Once your child understands the simple aspects of saving, upgrade him to a portfolio. Introduce him to more sophisticated financial tools such as stocks, bonds, and mutual funds. This can be a fun experiment where you track imaginary transactions of real stock. Start by investing an imaginary $2,000. Let your child pick stocks and watch them daily as they fluctuate. Be sure to factor in brokerage fees, and have your child track his gains and losses. When both of you are confident that he’s got a good grasp on how the markets work, you may want to experiment with small sums in the real world.

Create New Businesspeople

Finances and work are integrally related. Juan Casimiro, founder of Casimiro Global Foundation which provides entrepreneurship training to youth, believes that personal economic empowerment and global social leadership are directly linked. Introduce your child to the principles of social entrepreneurship. Teach her how to make money while creating a better world. Show your child that financial success can be achieved while still helping others thrive.

Why You Should Think Twice Before Co-Signing a Loan

With the economy still gasping along, more and more families are running into credit problems. For some, bankruptcy is the only solution. Others try to restructure their debts. And still others try to borrow money from friends or relatives. If you’ve ever been in this situation–either as the borrower or the lender–you won’t want to miss this guest post by Briana Fabbri.

Do you have friends or relatives who are having trouble getting a loan?  Have you considered co-signing a loan for them?

While you may have both good credit and the best intentions, you should carefully consider the ramifications before you agree to co-sign a loan:

  • First and foremost, lenders will treat this loan as if it were made directly to you.  If the borrower fails to make the loan payments in a timely manner, your credit rating could be affected.  The missed payment could be reported to your credit report, and would potentially reduce your credit score.  [Read more…]