Increasing Your Family’s Financial Literacy
When our kids are in their early to mid 20’s, what have they accomplished? Maybe they’ve graduated college, started their first career, moved out on their own or become self-sufficient. But, how would you rank their financial literacy? Today, we will lay out a plan for them to understand basic financial tenets. After all, we don’t want them to make the same mistakes that we did at their age!
A Plan to Increase Financial Literacy For Your 20-Something Child
The focal point of this plan is to go back to the basics. Even if your child took finance courses in high school or college, the basics were probably not taught. So, what are the basics?
a) Teach them how to budget. Have your child write down every penny they spend for 60 days. Help them review their notebook and categorize each of their expenses. Once this is complete, work with them to create their budget and hold them accountable to it for one year. If you work with a Financial Advisor, schedule a meeting with the whole family to discuss the importance of their budget.
b) Teach them how to balance their checkbook.
c) Encourage them to save immediately via three accounts: a savings account which should hold 3-6 months of living expenses, a Roth IRA which allows them to begin saving money for retirement, and their 401(k) if one is offered to them at their job.
d) Encourage them to purchase a 30 year term life insurance policy. They are very inexpensive at this age and your child will be happy they have it once they get married and have a family.
e) Purchase medical and disability insurance if their employer does not offer it. Most 20 somethings are very active and they need protection.
f) Set long term goals. Work with your family to encourage goal setting and goal tracking. For example, set monthly savings goals to build up enough money for the down payment on a home.
g) Teach them that credit cards are forbidden. If they already use credit cards, teach them how to manage credit in a healthy and effective way.
h) Discuss work ethic and what employers want from an employee in today’s jobs market.
i) Teach them about the stock market: define stocks, mutual funds, bonds, what makes the stock market rise or fall, the importance of long term investing, etc. Visit Investopedia, my blog, and my Facebook video page for more free educational resources. I have an excellent mini-series to teach you about common financial terms.
j) Discuss the importance of paying their bills on time and keeping their credit stellar.
The Bottom Line: the time we spend with our kids to teach them about money will carry them forward for years to come. If you don’t have the time or expertise to teach them, seek advice from a Financial Professional. This may be the best investment you ever make.
Jon Sanchez is a registered representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. OSJ Branch: 12671 High Bluff Drive Suite 200 San Diego, CA 92130. Sanchez Wealth Management, LLC and IFG are not affiliated entities. CA Insurance Lic. #0772626.