Planning for the Future

Baltimore-based personal finance educator Clarence Thompson says that his mom is the person who gave him his first taste of financial literacy.

“I didn’t realize how transparent she was being with me until I became an adult and realized the lack of transparency that most adults have with their children,” he says.

Thompson, who has degrees in finance and real estate, has been advising adults in finance for over 15 years. In 2014, he expanded his services to kids. He teaches a youth financial literacy program that stretches over four weeks and educates kids from ages 10 to 13 about credit, savings, budgeting and investing.

“It’s hard to get adults to change their habits,” he says. “I needed to start working with the kids because if we reach the kids at 8, 9, 10 years old we won’t have so many problems with the adults.”

According to Thompson, a lot of parents’ lack of transparency stems from embarrassment—shame over the their own lack of financial education or possibly the less-than-stellar state of the family finances. But, Thompson says, educating kids as early as possible is a great way to help them protect their credit and get a head start on their future.

“Kids are going to get exposed to money fast. If they [shop at] a 7-11, they get change. They are trying to use their rewards points. Money is prevalent every day in their lives,” Thompson says. “Even in the cafeteria they got to make decisions, ‘do I get cookies or do I get juice?’ I think some of those conversations that parents need to have with kids involve decision making that kids need to be aware of as early as they can.”

Thompson says that parents should make sure kids understand the idea of credit, specifically, as early as they can. That way, they won’t get themselves into trouble as soon as they are grown up and outside the home.

What Can Parents Do?

Before parents can begin to teach kids about their credit, they can do something equally important: protect them from credit fraud.

Major companies like TransUnion, Equifax and Experian all offer consumers the opportunity to freeze their own credit, or the credit of a minor or dependent, as a measure of safety while your child is still young. A credit freeze, also called a security freeze, means that no one can access your loved one’s credit information without your permission. This helps secure their information from identity thieves. Creditors, debt collectors and some government agencies could still have access to the information, however. To get a credit freeze, you submit your name, address and other pertinent information to the credit bureau of your choice. The company will then give you a special personal identification number you’ll need to use when you want to lift the freeze.

Parents can also take advantage of credit monitoring family plans. Equifax, for example, can search for existing credit files in your child’s name. If one doesn’t exist, they will create one and then put a lock on it.

Thompson advises that parents check their kids’ credit often to ensure that they are not victims of credit card fraud. Thompson says that consumers can now check credit reports more frequently than in the past—and that’s a good thing. One safe source to do just that is through the website annualcreditreport.com.

Leading by Example

Thompson advises that parents with good credit make their child an authorized user on any credit account that they have.

“I call it the piggyback method,” he says. It’s a way for kids to see how their parents use credit, and they can familiarize themselves with it, giving them a leg up when they are in charge of their own finances.

“Add them to your account as authorized users, get them the credit cards,” he says. “When 16 comes around, they start using the credit cards. As parents if you’ve trained your child up until that point, getting a credit card at 16 [will] help build up their credit so by the time they are 21 they are ready to buy a house; I don’t think that’s a bad thing.”

Planning for Special Needs

Stuart Flaum, managing director of the New York City-based Special Needs Family Planning, echoes Thompson’s belief that it’s never too early to start envisioning your child’s adult life when thinking about finances. Flaum’s company works with families raising children who have a whole spectrum of special needs.

“When the kids are young, parents don’t often think about the complexity of financial planning because they think that they will be there to provide for their kids until they academically reach college or get a job and move on,” he says. However, parents don’t always take into account that kids with special needs often need to access care and support as adults. Then what? Flaum says that parents of kids with disabilities often get help from the government—although how much help they get depends on where they live. But that’s only one part of the child’s financial outlook.

“The other side of the pie is what the family can use as far as their personal resources to plan for today, tomorrow and for the future? Most families go through the school system trying to get support and services, and for many people the school system is a comfortable, reliable place because that’s where our kids spend most of the day; but the school system doesn’t plan for the future,” he says. “They are trying to educate. They are trying to mediate. They are trying to really be a holding place for development for academic purposes.

He says that he got into this specific line of work because his own son faces special challenges. He sought out financial services but didn’t feel there were many resources out there for parents like him.

“It was all about parent point sheets, getting the kids to fit the model and I realized that it’s very likely that my son wasn’t going to fit any particular model. And that I really needed to figure out how he would be able to live a different life,” he says. “So I created Special Needs Family Planning as a way to really have some open conversations that are kind of exciting as opposed to what’s going to happen when you die, which is what a lot of conversations have been in the financial industry when it comes to financial planning. We think that the future is great for everyone who’s different.”

Tips From the Experts:

• Start early. Both Thompson and Flaum say that it’s important to get started thinking about the financial future as early as possible.

• Get help from an expert. Thompson says that parents can and should seek out the help of finance experts. He says that parents should feel comfortable with the person or business they choose to work with and ask for references.

• Flaum says that you should be flexible when planning for your child’s future. What if your child won’t be going to college? What’s plan B? He also suggests thinking of other things your child may need as an adult—like career counseling or medical needs.

• Reach out to parent support programs. Flaum says that parent support programs can be great places to access resources and to get help from like-minded individuals.