Monday, December 22, 2014

Ask Carrie: How can you set a good financial example for your kids?

Dear Carrie,

My dad was a great provider when we were growing up. He worked at the same company for more than 35 years and even has a pension. It’s such a different economy now. How can I be the best example and provide for my kids when the job market is so uncertain? 

—A Reader

 

Dear Reader,

Times may have changed, but certain old-fashioned economic values remain. Yes, the economy and the job market are uncertain, and traditional pensions have pretty much disappeared. But the principles of hard work and wise money management that both your father and mine built their financial lives on have stayed the same.

To me, if you can pass those principles on to your children—and lead by example—you’ll prepare them for whatever the future holds. Here are some tried and true ways to help you do just that:

  •  Live below your means—This harkens back to the basic concept of ‘needs’ versus ‘wants.’ Some things are essential, some are ‘nice-to-haves’. So ask yourself: Do you really need the newest new thing? I’m not saying you always have to deny yourself. I’m just suggesting that you make a conscious choice about each purchase—and include your kids in the decision-making. If your kids’ desire for the latest technology or fashion trend will push you beyond your means, be honest about that.
  • Make saving a part of everyday life—Saving is an old-fashioned value that never goes out of favor. It’s essential, especially for retirement. So set some savings goals and help your kids see the importance of working toward them. You might even have them contribute in some way. And be honest. When they can’t have something they want, tell them where that money is going instead, whether it’s toward your retirement, their education, or a family vacation.
  • Avoid bad debt—By bad debt, I mean high-cost consumer debt (credit card debt, for example). If the only way to buy something is on credit—and you can’t pay off the balance when you get the bill—proceed with caution. Sure, credit cards make life easier. But teach your kids how to use them wisely, and make sure you always do the same.
  • Get your kids involved early—Talking to your kids is a good first step, but also give them some hands-on experience. As early as age five or six, kids can start to handle a small amount of money and make decisions. Consider giving them an allowance and make them responsible for certain things, even if it’s just a treat or a movie. Open a savings account and have them put part of their allowance or money gifts toward a future goal. You might offer to match their savings as an incentive.

Once your kids are old enough to have earned income, you could open a custodial IRA and get them saving for retirement early. When they’re young teens, start to explain the basics of investing, focusing on the importance of diversifying and thinking long-term.

These aren’t new ideas. You probably heard some of them from your father. I certainly did! And I’m grateful to my dad for always being a good example, as yours is. Now it’s our turn to teach our kids some of those unchanging values. That’s not old-fashioned; it’s just smart.

Happy Father’s Day!

Looking for answers to your retirement questions? Check out Carrie’s new book, The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions (Crown Business, 2014), available in bookstores nationwide. Read more at http://schwab.com/book.

This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. COPYRIGHT 2014 CHARLES SCHWAB & CO., INC. MEMBER SIPC. (0614-3161)

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