By: Andrew Rosen, CFP®, CEP®

Consider this: there is no school mandated curriculum on Money.  Crazy, right?  Personally, I learned (and subsequently forgot) almost everything from grade school – reciting the State capitals (which my 5 year old daughter knows a song to), cooking elephant ears, and even figuring out the radius of a circle.  Yet, somewhere between the Pythagorean Theorem and how to bend a laser our schools forgot one subject matter that we all use every day…. Money!

A foundation of understanding money and finance is essential to navigating adulthood.  Without money, we’d never afford necessities or fulfill our dreams.  With that in mind, I wanted to share what I wish someone taught me in my youth, and (more importantly) what I plan to teach my children.

First Semester: Earning Money

Many kids don’t recognize how hard it is to earn a dollar.  Now, I don’t want little Timmy calculating and worrying about the cost of his lunch, but most of us try too hard to shelter our children.  Knowing the work involved in earning money is the cornerstone of understanding.  You and I know money doesn’t grow on trees, but do they?  We know it takes steady resolve and working thankless hours to receive the reward of dollars in your bank account.

Children need to understand there are no short cuts to making money.  Teaching them will instill wisdom at an early age and can only set them up for success.

Second Semester: Delayed Satisfaction

Ok, lesson one taught – earn your money.  Now, we must educate them on the power of patience. It’s an all too common temptation: seeing a few dollars in your account and wanting to go spend them.  Teaching our children to delay those initial urges does a few things:

  1. It makes them realize half of the things they wanted yesterday no longer hold the same appeal today.
  2. It teaches the importance of saving. This is huge when it comes to adulthood – whether it be a new home, college, car, or retirement. Having set goals (and the discipline to save for those goals) is critical to financial success.
  3. It forces a savings first mentality. Remember, the formula should be: save first, spend on essentials, then spend on fun. (All too often we see the very reverse of this in children and adults alike.)

These three items would help everyone, even with our older client base.  It’s not uncommon for us to see debts that should never have accrued.  These ill advised purchases are preventing people from attaining their goals.  Learning these principles early would better prepare our children to respect money.

Third Semester: The Power of Compound Interest

The 8th Wonder of the World is compound interest!  If you’ve graduated to the third semester, it means your children are now actually saving in some way.  Now, it’s time to start educating on saving vehicles.

Saving under our mattress can accomplish this task, but generally that’s not a great plan.  It’s best to teach the power of having their money earn money.  I bet you can imagine them wide-eyed saying “What?  My money can earn for me?  How does that work?”  You can then turn to them, and with an experienced tone say, “Yes, and here’s how.”

Whether it be a mutual fund portfolio or even a high yield savings account, seeing growth each month from that savings vehicle is a very important life lesson.  (Who doesn’t love saving $1 and getting $1.25 back?)  This is a powerful lesson for us (young and old).  Educate children early, so they can reap the benefits of their money working intelligently.

Fourth Semester: Understand Investments

Stocks and bonds over any 20 year time period have a permanent trend upwards.  Fact!

Stocks and bonds fluctuate day-to-day and year-to-year.  Fact!

Arm your children with the fundamental understanding of these two principals.  It will do wonders for their financial future.  They’ll invest more through the years and be comfortable knowing that investments usually work (even if investors don’t).  Compound interest will benefit them. Hopefully, they’ll realize that 7% return means their money doubles every 10.2 years.

Too many of us (for whatever reason) just don’t understanding these two basic investment principals. Thus, we end up working harder to achieve the same savings as our more “risk tolerant” friends.

Extra Credit: Understanding Credit

Understanding money is the forefront to our financial success.  That said using good credit constructively and avoiding bad credit (or debt) are both extremely important as well.  These tools help maximize your money and use it efficiently.

Be careful with this one! While it may be smart to add your child to a credit card, or get them their own card, you certainly don’t want them accruing a lot of debt.  I’d suggest starting off simple.  Help them purchase a big item, but put them on a payment plan to do so.  If they show they’re ready, let them get a low limit credit card and start becoming responsible here as well.

So, credit: Get it?  Got it?  Good!

Graduation Day!

Hopefully, this information gives your children the basic knowledge to let them spread their wings. Financial literacy at a young age is fantastic.  If they fail, use it as a lesson.  Let them learn from their mistakes in a safe environment.  It will help prepare them for future dollars (hopefully thousands and more).   Time to graduate!

I’d love to hear any successes (or failures) you’ve had with your children.  Both sides can only help us give better advice.  In the meantime, we are here to answer any questions you might come across or discuss ideas you have.  Remember the infamous words of Crosby, Stills, Nash, and Young:  “Teach your children well!”

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Andrew Rosen

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

Find out more about Andrew Rosen, CFP®, CEP®
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