Authored by Ashlea Ebeling Senior Contributor, Forbes, April 5, 2022
Presented by Axial Financial Group
1. HELP KIDS LEARN WITH REAL MONEY
Giving your kids a reasonable allowance—as opposed to simply buying them things they want—is a good thing. “It creates agency and responsibility,” Ziv says. “It also gives them freedom to make mistakes at a lower-stakes level. We’re all going to make mistakes. It’s better to make them early on where there are parental guardrails.” If your teen is earning money on their own, consider a “parental match”—similar to an employer match into a 401(k)—to encourage saving. The match can be into a regular savings or investing account, a 529 college savings account or a Roth Individual Retirement Account kids can open in their own names. You can help fund the Roth up to your child’s earned income. And don’t be put off by the name of the account; contributions to a Roth grow tax-free for retirement but can be withdrawn without penalty should your child need them for college, a house or any other goal along the way. If your child gets a W2 tax form showing their earned income, that’s the time to discuss gross and take-home pay—and taxes. The good news is they may be due a tax refund if they were a regular employee and taxes were withheld. The bad news is if they earned more than $400 in gig income from odd jobs like babysitting, tutoring or lawn mowing, they are required to file a tax return and may owe Uncle Sam some money.
When it comes to talking to your kids about money, the first thing to know is that they’re not starting from zero.
If they’re on TikTok and Instagram, they’re getting money messages, and not necessarily the ones you would want—they may have heard more about the supposed benefits of crypto speculation and buy now, pay later apps than about the importance of diversifying investments or building an emergency fund. “If parents aren’t advising and guiding their kids about money, the void will be filled,” warns Shahar Ziv, a Harvard MBA who started a personal finance bootcamp for undergraduates. He now runs sessions for high schoolers, too, and reports that many are keen to discuss the “fun, sexy stuff” of how to get rich through investing but don’t yet have a grasp of the budgeting, credit and savings basics that can help get them in financial shape to invest. Here are four steps to help your teens build the smart money habits to reach their goals.
2. GET ON A COMMON PAGE
Talk to your kids about what they’ve been learning about money, and from where—be it from the Web, their friends, in school or at home. (Don’t forget that your own financial behavior and choices send messages—intended or not.) Discuss the need to question both the expertise and bias of money sources. Is that influencer you so admire being paid? “Objectivity is key,” Ziv says. “You want to ask, ‘Why is that person giving you advice? Are they coming at it from a selfless place?’” A growing list of states require high school students to take a personal finance class to graduate, according to a new survey by the Council for Economic Education. In March, Florida became the most populous state to adopt the requirement. It’s a healthy trend. But don’t assume what kids learn in school is enough or always well-balanced. Example: Hundreds of thousands of high schoolers a year participate in stock picking games with play money, and some end up using high-risk techniques like margin borrowing and short selling to win the game. Gamification can be great at sparking interest, but has risk been fully explained? To start the conversation, the federal Consumer Financial Protection Bureau has tips on what kids should know about money at different ages, as well as results of an eye-opening quiz that shows how few 15-year-olds understand money basics or are prepared, for example, to protect themselves against financial scam phishing emails.
3. USE ACCOUNTS WITH TRAINING WHEELS
In the past few years, a raft of fintech startups and established banks, brokers and credit unions have rolled out new savings, spending, budgeting and investing accounts for kids. They come with a variety of educational features and parental controls, but most are app-based and include a debit card that teens can load onto their smartphones. “Today’s youth are more likely to leave home without a wallet than without their phones,” Ziv observes. Note that kids can’t legally open regular bank or brokerage accounts—so these are all technically parent-owned accounts, or joint accounts or old-fashioned “custodial” accounts (the money in a custodial account legally belongs to the child, and they get control at age 18 or 21). Shop around, since the features, fees and parental controls vary widely. Also consider adding your maturing teen as an authorized user to one of your credit cards—it can help them to build both experience using a card responsibly and a credit history. That history could help them later, as a young adult, to qualify for their own credit card, car loan or mortgage. Personal finance talks should be ongoing, Ziv says. A monthly discussion about what’s on the credit card bill is one way to pick up the conversation—along with a lesson on the importance of paying off that balance each month.
4. TALK (AND MODEL) MONEY VALUES
Broaden the financial conversation with your kids to include what money can and can’t do for you—and for others. Lan Nguyen Chaplin, an associate professor of marketing at the University of Illinois at Chicago who has studied kids and materialism for two decades, says parents who give children everything they ask for or pay them cash for A’s in school may unintentionally be setting them up to feel like they never have enough, or that money defines their value as people. Little actions can send a big message. Example: The professor and her husband make it a point not to upgrade their cellphones every time a new model comes out to show their two teenagers that you can be happy without the latest, most expensive gear. “By focusing on what you have, the abundance becomes so clear, you’re not yearning toward what you don’t have,’’ says Chaplin, who is moving to Northwestern University in June. Modeling responsible financial behavior is crucial. You can lecture all you want about the dangers of spending money you don’t have and then undercut your message when the kids see you paying a high interest rate on a credit card balance you ran up buying something you didn’t need. “Are they going to listen to what you’re saying or take a cue from your actions?’’ Ziv asks. You can also demonstrate the importance of sharing your good fortune through family participation in charitable giving and volunteer work. Having grown up relying on hand-me-downs from strangers, Chaplin now volunteers every summer with her children and students at a charity that collects and sorts goods for families in need. “When you donate, you need to be thoughtful,” she says.
© Axial Financial Group. All Rights reserved. 5 Burlington Woods, Suite 102 Burlington, Massachusetts
The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through Axial Financial Group are separate and unrelated to Commonwealth.