When I travel the country speaking to high school and college students about exactly what they need to do to become financially successful in life, I always begin my presentation by asking three questions:
“How many want to be financially successful in life?”
“How many think they will be financially successful in life?”
Almost every time I ask the first two questions every hand rises in the air. Then I ask the magic third question:
“How many have taken a course on how to be financially successful in life?”
Not one hand rises in the air, ever. Clearly every student wants to be successful and thinks they will be successful but none have been taught by their parents or their school system how to be financially successful in life. Not only are there no courses on basic financial success principles but there are no structured courses teaching basic financial literacy. We are raising our children to be financially illiterate and to fail in life.
Is it any wonder that most Americans live paycheck to paycheck? That most Americans accumulate more debt than assets? That many Americans lose their homes when they lose their job? Is it any wonder that most Americans cannot afford college for their children and that student loan debt is now the largest type of consumer debt?
Schools teach what they are required to teach. It’s unfortunate, but financial education is not a requirement in most schools and, thus, it is up to the parents to teach their kids to be money smart.
Parents are often the only shot any of us have at having financial success mentors in life. Parents are responsible for laying the foundation for financial success with their kids. They need to be financial success mentors to their kids.
When parents mentor their kids for financial success, they give their kids a competitive advantage. Why? Because most parents don’t teach their children about money. By the time their kids become adults, and figure out what to do and what not to do, they are already behind the eight ball.
Parents, therefore are the key to the financial success of their children.
In two of my books, Rich Kids and Effort-Less Wealth, I share many mentoring strategies that help parents in raising their kids to succeed in life financially. Here are a few of those strategies:
- Start Saving Immediately – Saving is a habit that must be forged right out of the gate, with their first job. Start small, say 5% of net income. As their income rises increase their savings rate to 10%. The ultimate goal should be saving 20% of net income by the time they are age 30.
- Invest Savings – Parents can help their children by directing them to sound financial advisors who will help their millennial children safely invest their savings.
- Teach Frugality – Don’t mistake being frugal with being cheap. They are two very different things. Being frugal requires three things:
- Awareness – Being aware of how you spend your money.
- Quality – Spending your money on quality products and services and
- Bargain Shopping – Spending the least amount possible, by shopping around for the lowest price.
- Avoid Lifestyle Creep – Increasing your standard of living in order to match your increased income. It’s a common Poor Habit among many who suddenly find themselves making more money. The Rich Habit is to forgo the desire to spend your money today and, instead, sock it away into savings and investments that grow in value and provide financial resources that can be used in the future to maintain your standard of living. That Rich Habit is called Delayed Gratification – putting off something you want today for something you want tomorrow – financial independence.
At what age should parents start to talk to their children about money?
Teaching kids about money is a process that should start no later than age 14. When their child reaches 14 then it’s time for a sit down. Alternatively, parents should be directing their kids to read self-help books, particularly ones that teach the fundamentals of money. Giving their child a book to read is a conversation starter.
Once the child reads the book, or books, parents should sit down with their children and discuss the key money points in the book. rich Kids and Effort-Less Wealth were intentionally written at the sixth grade reading level and are easy reads. Some other easy to understand books:
- The Richest Man in Babylon
- Smart Money Smart Kids
- Make your Kid a Money Genius
- The Opposite of Spoiled
- Clark Smart Parents, Clark Smart Kids
How should parents guide their kids to be money smart?
It’s important for parents to take control of the money children make while working part-time. Parents should establish a savings account at this point for their children and put 50% of their earnings into this savings account. Alternatively, they can start a Roth IRA and invest this 50% into the Roth. This is a great opportunity for parents to teach their kids about investments, such as mutual funds, stocks or ETF’s. With a Roth, parents and their children can watch the money grow inside the Roth. Parents should teach their kids that this 50% can never be touched until they are much older. These savings, even Roth contributions, can be used to buy a car or for college.
When parents fail to do their job as financial success mentors, they set their kids up to struggle financially in life. Since this happens to be the rule, rather than the exception, what can be done?
Schools need to step in and mentor students to be money smart. How?
High schools need to start teaching financial education to their students beginning in freshman year. It needs to be a multi-prong curriculum that includes:
- How to Pay Bills and Balance a Checkbook (freshman year)
- How to Save and Invest Your Savings (sophomore year)
- How Insurance Works – Auto Insurance, Home Owners Insurance, Health Insurance (junior year)
- Understanding Student Loans (junior year)
- Personal Income Tax Fundamentals (senior year)
Tom Corley is an accountant, financial planner and author of “Rich Kids: How to Raise Our Children to Be Happy and Successful in Life”, “Effort-Less Wealth”, “Change Your Habits Change Your Life”, “Rich Habits Poor Habits” and “Rich Habits: The Daily Success Habits of Wealthy Individuals.”