Learning how to earn, manage and invest money isn’t something that kids are typically taught in school. In fact, according to Youth.gov, many kids lack basic financial knowledge of everyday situations, from budgeting to reading an invoice. In one financial survey, high school seniors only scored an average of 48% correct, revealing a need for financial education. Who better to get money advice from, then, than dads with financial expertise? Here’s what seven fathers with real-life wisdom shared.
Adopt a Growth Mindset
Jonathan Sanchez, father of two, a real estate investor and co-founder of Parent Portfolio, teaches his kids to think beyond just how much something costs.
“I give my kids the money advice to not think that they cannot afford anything, such as a toy or a game. Instead, I encourage them to ask themselves, how can they afford it? This question promotes a growth mindset that [they] can use in all aspects of life, including finances, such as having a savings goal.”
When his 7-year-old son wanted to subscribe to an online learning game, the boy came up with the idea of selling his unused toys to help him reach his goal.
Maximize Your Retirement by Starting Early
For young people, retirement is a theoretical idea that will happen “someday.” But according to dad David Steiner, a principal of Zebulon Tax Advisory LLC, the earlier you start putting money away for that day, the more likely you won’t have to worry about money in retirement. For example, he ran the numbers on a 401(k). The math is simple: “$20,000 (limit is $19,500) per year for 20 years is $400,000, and with growth at 6% (which is really low, the market averages 9-11%), it will turn into about $865,000. If you increase the rate of return to 8%, the amount is now about $1.2 million. Not bad. If held for 40 years at 6% — $3.4 million, 8% — over $6 million — one can retire on that comfortably.” The same goes for an IRA.
Pay Yourself First, but Live Below Your Means
Bryce Welker, owner and CEO of CPA Exam Guy, an e-learning and course review resource for CPA exam candidates, tells his kids two main things:
“One would be pay yourself first, the second would be live below your means. The first is an inducement to save money. Whenever you get paid, whether that’s through investing or employment income, prudent financial planning for the future involves setting aside money for your savings account first before spending money on anything else. The next budgetary allocation would be to your bills, followed by discretionary spending.”
He reinforced the idea that wealth “is about what you have, not what you make.” By spending less than you make, he said, “you set yourself up for financial security.”
Don’t Over-Invest in a Home
Robert R. Johnson, Ph.D., CFA, CAIA, professor of finance at Heider College of Business and Creighton University, teaches his kids to maintain modest investments in real estate.
“Too often people in their 30s make the mistake of spending too much of their income on a house and effectively ‘crowding out’ other investment opportunities,” Johnson said. He quotes Nobel Laureate economist Robert Shiller, who said, “Housing is traditionally not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems…” Johnson added, “By over-investing in real estate, many individuals crowd out other investment opportunities — like investing in stocks and bonds. People in their 30s have a long time horizon and should have little exposure to bonds.”
Avoid Debt at all Costs
Debt is like sending your money into the past. Micah Wotton, CTO of Douugh, said, “Do everything you possibly can to avoid debt.” Whether this means you learn to “go without,” or buy cheaper products, he warned, “Getting out of debt is more painful than going without some things.”
“When you’re just starting out in your career, short-term cash through a credit card or loan is really attractive. But it’s a very short-term solution to a long-term problem, and will make that problem even worse over time,” Wotton said.
Also, don’t be afraid to ask for help. “Don’t just ask friends and family, but seek professional advice,” he said. “There are many tweaks and tips, let alone assistance, that could apply to your specific circumstances, which you may not be aware of until you get that professional advice.”
Get Work Experience Early
Getting a part-time job or side hustle as a youngster will “help you understand the value of a dollar and you’ll learn some very important skills that will serve you well for your entire career,” said Dean Brauer, co-founder and president of gohenry.com, a kids’ debit card and financial education app. “Start earning your own money as early as you can.”
Additionally, learning to understand the difference between wants versus needs “will help you budget, keep your spending in check and save before you spend. We all want nice things, and it’s okay to buy the things you want, but until your needs are met it’s wise to wait and save for your wants.”
And lastly, he said, “Chase a wealthy life, not wealth: Living within your means, working hard and, honestly, creating time for things that you live to do and worrying less about shiny material things and building memories and positive relationships all contribute to a wealthy life. This is what true wealth is!”
Learn To Save Your Money
Mitchell Kraus, a financial planner with Capital Intelligence Associates who specializes in multigenerational wealth management and legacy planning, teaches his 12-year-old about saving.
“I like to tell him the old Benjamin Franklin saying ‘A penny saved is a penny earned.’ I remind him if he spends his allowance on something that sounds cool in the short-term, that the money is gone forever and he’ll never have the opportunity to purchase something with it again. Taking a few minutes to think about the short-term pleasures of any purchase versus the long-term growth of capital is hard to learn at any age. But as with all things in life, a few moments of reflection can lead to lifelong opportunities.”
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