What to Teach Your Kids About Money

Expert Contributor article by Ryan Gray, Oppenheimer & Co.

What should parents teach their kids about money so they’re prepared for the future? Every kid should learn these basic financial principles – the younger, the better.

SAVE

We all know it’s important to create a budget, even if that’s a daunting or tedious task. Fortunately, kids don’t have too many expenses to keep track of. The first lesson to teach kids is the most important: Save as much as you can, as early and as often as you can.

Clothes, sneakers, video games, makeup and jewelry are items that most kids spend their money on. While it’s fun to get the latest toy or clothes, they should learn that newer or bigger isn’t always better. With the proper discipline and mindset, kids can save up for items they think they can’t live without. As soon as they get their working papers, kids must learn the sage advice: “Pay yourself first” by socking away 10% of their paychecks right off the top.

Also remind kids that their #1 job is to go to school and get an education. After-school, weekend and summer jobs are usually only temporary, and that income may stop as quickly as it started.

INVEST

Building on the philosophy of saving early and often, children should understand how to invest in the financial markets. Savings accounts and money market accounts are useful because they come with easy access to cash in case of an emergency. Those accounts carry virtually no risk but earn very little interest. If your child can think about the future (beyond five years) and is comfortable with risk, a custodial brokerage account, Uniform Transfers to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) , for example, may make sense.

USE CREDIT RESPONSIBLY

As kids get closer to age 18, they’ll be tempted to sign up for credit cards. Unfortunately, that temptation may continue well into their adult lives. Credit cards aren’t a bad thing as long as the balance owed is paid back in a timely and consistent fashion. The credit limits are usually low, about $500 to $1,000. But the interest rates can be incredibly high, anywhere from a “low” rate of 7% at the beginning (to entice you to sign up for the card) to a high rate of 27% (sometimes as soon as a few months later). If you can properly manage your debt and pay your bills on time, then a credit card can be an effective way to build your financial profile for the future.

Make sure children know early that they can always reach out to you and others for help in making financial decisions. It’s never too early to start, and many children find saving and investing a lot of fun.

Expert Contributor Ryan Gray, Director of Investments with Oppenheimer & Co., Inc.

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