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.

Raising kids who are grounded, generous, and smart about money

Ron Lieber, author of The Opposite of Spoiled.
Raising kids who are grounded, generous, and smart about money.
Issues: Why we need to talk about money; how to start the conversation; the allowance debate; the smartest ways for kids to spend; how to talk about giving; why kids should work; how much is enough?

Teaching Teens Financial Responsibility: What Should They Have to Pay For?

The annual cost for the average couple to raise a 14-year-old in 2012 was $17,730, according to the USDA’s Center for Nutrition Policy and Promotion. It cost $18,380 to raise a 17-year old that same year, and in a house with two teenagers and a 12-year-old, the annual cost to raise all three children rose to $33,590. How much of this financial load should teenagers be asked to bear? If you’re raising one or more teens old enough to work or drive, you might be wondering which expenses they should start paying for themselves. Here’s a guide to get you started.

Build on Your Budget

Approach your children’s budget as a reflection of your overall household budget. Financial advisor Elizabeth Warren advocates following a 50/30/20 budgeting policy: Each month, allocate 50 percent of your income to necessary expenses, 30 percent to discretionary spending and 20 percent to savings and debt reduction.

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Kids and Money + Making Fiends + Drug-Free Kid

[amazon asin=1607744082&template=thumbleft&chan=default]Joline Godfrey, author of Raising Financially Fit Kids.
A pioneer in increasing children’s financial literacy talks about thriving in a post-Madoff, post-subprime meltdown world.
Issues: Five financial development stages; essential skills children (of all ages) need to learn; observing your children’s money style and helping kids differentiate between wants and needs; connecting goals and savings; fostering an entrepreneurial spirit.

[amazon asin=0738213233&template=thumbleft&chan=default]Elizabeth Hartley Brewer, author of Making Friends
A guide to understanding and nurturing your child’s friendships
Issues: Should you worry when your child’s imaginary friend sticks around past preschool? How do boys’ and girls’ friendships differ? What do kids really value in a friendship? What should you do if you don’t like one of your child’s friends?

[amazon asin=B003E7ET44&template=thumbleft&chan=default]Joseph Califano, author of How to Raise a Drug-Free Kid.
The straight dope for parents
Issues: When and how to talk to your kids about drugs and alcohol; how to respond when your kid asks, “Did you do drugs?”; how to know when your child is most at risk; how to prepare your teen for the freedoms and perils of college

Fighting about Money Could Cost Your Kids Plenty

When mom and dad fight about money, their college-aged students are more likely to rack up credit card debt. So says Adam Hancock, who coauthored a just-published study at East Carolina University.

The study looked at the credit-card-carrying habits of 400 college students. Two thirds of them carried one card, while about one third had more than one. But the number of cards didn’t necessarily predict the student’s debt level. Instead, the students who told researchers that their parents “usually argued about finances,” were three times more likely to have balances over $500 than those whose parents never quarreled about money.

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U.S. Department of Treasury: Who’d Have Thought They Could Have Fun?

We all know that Americans have  among the lowest savings rates of any industrialized country. Well, we’re about to get some help.

The U.S. Department of Treasury just launched a contest that’s designed to inspire kids in grades K-12 to set financial goals and save for them. The “Save Out Loud” contest invites kids to send in their savings stories for a chance to win prizes from the Department. The grand prize is a live video call with Rosie Rios, the Treasurer of the United States (a much cooler prize would be to let the winner sign some dollar bills, but that’s just not in the cards, so a chat with the Treasurer is the next best thing).

The contest runs from now through November 25, 2012. Entry info on the next page.

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