4 Ways to Be a Financial Lifeguard for Your Children
By Joe Delaney
My son was recently home from college. I was relaxing on the couch one evening when he called me over to his laptop to ask for help. He had been looking at his credit card statement online. Something was wrong.
It appeared he had been charged a double payment. He was naturally a little alarmed.
As it turned out, he had simply signed up for auto pay. Wanting to make sure he didn’t go into arrears, he had made a manual payment just before auto pay kicked in. Easy mistake. I told him I’ve done it myself.
If only it were always this easy to protect our children from the perils of financial ignorance. We parents have our work cut out for us if we want to be their financial lifeguard.
Here are four ways to do it.
1. Financial Literacy
- It’s important to start teaching our children about money at a young age.
Teaching them how to save their allowance is the first step. Later, you can empower them with a checking account. My kids had checking accounts (joint with me) before their teenage years so we could show them how to balance their checkbook.
Unfortunately, the ability to see account activity at a moment’s notice through online banking has made it very tempting to think balancing a checkbook – or even having a check register – is unnecessary. Banks can still make mistakes, however. It’s important to teach kids to do their own accounting.
- We also need to help them establish credit, and teach them what it’s for.
An easy way to do this is by encouraging your 18-year-old to open a low-limit credit card. If they have not established sufficient credit, cosigning is an option.
It isn’t enough to establish credit. We also need to explain what they need it for (to borrow for school, to purchase a car or a house) and what they don’t (frivolous purchases).
It helps to do some math for them before they turn 21 and can get their own card without restrictions. It’s often sobering to do the calculations that demonstrate just how much debt they will be in if they don’t make it a habit to pay off their credit card every month.
2. The Value of Work
- Without a sense of self-worth, how can any of us succeed?
We must do what we can to instill the intrinsic reward of doing a job well in our kids. That internal motivation will pay more dividends in later life than anything else.
- Beyond the intrinsic value, there are certainly extrinsic benefits.
Having spending money to enjoy now is great, but we also need to teach them how the experience itself can contribute to a healthy accumulation of wealth later.
Knowledge is power, and so is the proof you have it. Your child’s teenage years are the time to start building a resume that tells future employers to take them seriously.
- Encourage your children to build their resume for the future of work.
Artificial intelligence and driverless vehicles are just two examples of emerging technologies that will revolutionize the workforce.
Any experience you can steer them toward that connects with an aspect of STEM (science, technology, engineering and math) study will make them far more attractive to colleges and employers down the road.
3. Cyber Security
- Financial know-how and work ethic may be for naught if our children’s identities are stolen.
A 2016 Consumer Report strongly advised freezing your child’s credit as early as possible. Why? Because “there is no more tempting target for identity thieves than your child’s financial identity.” It’s a clean slate, ripe for the taking and ruining.
Imagine your baby’s Social Security number stolen when he or she is just one month old. That is the youngest reported case. You would likely have no idea until your child tried to get a credit card or borrow for college years later.
- Currently, 29 states allow you to place a security freeze on your child’s credit report.
They are: Alaska, Arizona, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, New York, North Carolina, Ohio, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington and Wisconsin.
4. Retirement Planning
- It is never too early to begin saving for retirement.
Your college-age kids may think you’re nuts for suggesting it, but the power of compounding over a lifetime is magnified so much when they start early.
Help them open an IRA and encourage them to begin socking away a portion of their income. Also encourage them to take advantage of their company 401k – especially if there is a company match – and contribute the maximum, if possible, early and often. They’ll thank you for talking them into it when they approach retirement age!
Giving Them Knowledge, Instilling Values, Keeping them Safe, Planning for the Future
We all want to be a financial lifeguard for our children. At Lifeguard Wealth, we sincerely hope the most challenging financial issue your child faces this year is an accidental double payment on his credit card.
From one parent to another, if you have questions about ways to protect your children’s future wealth and security, please don’t hesitate to call us.
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The opinions expressed by myself and other featured authors are their own and may not accurately reflect those of Lifeguard Wealth. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
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