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How to Educate your Children about Financial Management

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Written by: Heather Hall | 280 CapMarkets

August 14 was National Financial Awareness Day, which presents a golden opportunity to educate your kids about financial management. Unfortunately, it’s not common that financial literacy programs are offered in school curriculums. In fact, according to Investopedia, only 17 states in the U.S. require high school students to take a course in personal finance.

Why is this important? For the majority of Americans, it seems, the topic of money management and personal finance has largely been ignored. According to a 2016 GOBankingRates survey, 69% of Americans have less than $1,000 in their savings accounts, and 34% have no savings at all. Furthermore, it has been cited in the media that the average American saves less than 5% of their disposable income, which doesn’t appear to bode well for unexpected expenses, let alone a comfortable retirement.

One of the fundamental ways to achieve financial stability and success is education, which should start at a very young age and continue through adolescence. It’s never too early to prepare your child. Below are ideas on how to foster financial awareness in your children, and teach them about financial management, at various life stages.

Toddlers to Tweens

The key to teaching financial literacy skills at a very young age is engagement. At this juncture, interactive games and activities should be utilized to impart practical money lessons. According to the National Financial Educators Council (NEFC), using financial education games as teaching tools helps ensure that kids not only learn the basics of banking and savings, but also retain the information over time, thus forming positive money habits at a very young age. The NEFC’s Cash Cow and Pig E. Bank are just a few of the games that deliver financial education for children. You can visit http://www.FinancialEducatorsCouncil.org to view the full range of educational activities offered by the council.

High Schoolers

Teenage years are an ideal time to teach practical money skills. Many high schoolers have weekend and summer jobs, and it’s the first time they will earn significant amounts of money. All too often, peer pressure will influence poor saving and spending habits, which is why, at this stage, teaching relevant financial skills like managing a salary and avoiding debt is critical.

Related: Kids, Money, Elton John and Dad’s Poor Habit

Various resources can help enable teens to explore personal financial choices, learn to make informed financial decisions, and consider what it means to be financially responsible. The National Endowment for Financial Education (NEFE), for example, has developed a program, meeting the National Jump$tart Coalition’s K-12 Personal Financial Standards, to help students in grades 8-12 better manage their finances. The NEFE’s High School Financial Planning Program® (HSFPP) is a free, turnkey financial literacy program specifically focused on basic personal finance skills that are relevant to teens. You can find more information here: https://www.hsfpp.org.

College

In preparation for entering the workforce, it is vital to convey lessons to young people about saving, and the most efficient means to accomplish their long-term saving goals.

One of the most important actions your children can take to secure financial stability for the future is to make automatic contributions to a savings account each pay period. There are several ways to achieve this. The most popular vehicle is the 401(k) plan, which is an employer-sponsored savings plan that enjoys tax advantages under section 401 sub-section K of the IRS code. The special tax treatment allows employees to make contributions to the plan with pre-tax dollars, which means that taxes are not paid on any amounts contributed. Additionally, all taxes generated by a 401(k) account are tax-deferred until the age of 59½, at a minimum, with mandatory distributions occurring at the age of 70½.

Furthermore, most companies offer direct deposit, so it’s possible to allocate a portion of a paycheck to both checking and savings accounts simultaneously. If this is not an option, your children can set up an automatic transfer from their checking to their savings account directly with their bank.

Related: How to Map Your Kids Money Mindset

Finally, there are various apps that can assist with saving, investing and managing money. Bloom, run by an SEC-registered investment advisory firm, will optimize and monitor your child’s 401(k) for them. They offer a free analysis of their current employer-sponsored retirement plan to assist them in understanding their investments and uncovering unnecessary hidden fees. The app Digital employs algorithms that analyze their spending habits and automatically determines when it’s safe to withdraw small amounts from their checking account, which are then deposited into an FDIC-insured savings account. Acorns rounds their credit or debit card purchases up to the nearest dollar and invests the digital change.

Teaching your college-age children about how to start saving before they graduate and enter the workforce can help them tremendously.

It’s never too early to teach your kids about financial empowerment. National Financial Awareness Day affords an excellent opportunity to step back and ensure your children are on the right track to achieve financial independence and stability.

Heather Hall is CFO of 280 CapMarkets. The firm combines a cloud-based technology platform with the in-depth market expertise and execution services of a traditional broker-dealer to help independent financial advisers buy, sell, and manage bonds. Ms. Hall serves on the Financial Literacy Committee of the California Society of CPAs.

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