From Allowances to Income: Teaching Kids Fiscal Fitness

The Single Digit Years

Use these early years to create a foundation that helps your kids understand the concept of trade-offs when it comes to money. When your kids receive cash for an allowance or from special occasions, discuss what choices they have, like spending, saving or giving to charity. Then, practice what you preach and discuss your own financial decisions with them, like why you donated $20 to the humane society or put $20 in the bank.

And if your kids aren’t quite appreciating the importance of saving, don’t fret. At a young age, the risks are low – so allow them to learn from their mistakes if they run out of cash when they want to buy that new shiny toy.

The Teenage Years

As your kids begin to enter the workforce with summer and part-time jobs, you can explain why (and which) taxes are withheld – and how some of that money could return as a tax refund. Along with this, you can expand your conversation about saving. A great guideline to abide by is putting away 10% of every check into savings – and if your kids want to go to college, that’s a great incentive to save.

Finally, now is as good a time as any to introduce your kids to investing – and your Baird Financial Advisor team can serve as a resource to explain the best investment vehicles for your child’s specific situation.

Parents should emphasize spending less than you earn. When my daughter couldn’t afford the cowgirl boots she was eyeing, despite working hard at her job, we reviewed her finances and I explained that small expenses like fancy coffee drinks can add up over time. Now, she is mindful of her spending so she can have fun and save for what she wants.

– Jessica Bell, Senior Estate Planner

The Early Adulthood Years

For many young people, college is the first time they will make larger financial decisions on their own – so having a budget is essential. Consider teaching your child how to establish, track and stick to their very own budget before helping them open a credit card. Once they do so, they can start to build credit for future expenses like apartments and loans.

It’s also vital to explain to your student how their education is being paid for. Ensure they understand the implications of student debt, and how different choices like living on campus can change the overall cost of their education.

As your child enters college, one idea is to hold money they’ve earned in your own account. Then, you can make regular transfers to your student’s account – it’s still their own money, but monitoring what’s transferred can help them ration it out over the school year. Kids don’t need access to all their savings on the first day of school.

– Tim Steffen, Director of Advanced Planning

The Working Years

Even when your kids have flown the nest, you can still play a role in guiding them down the right path. When your adult children have their first full-time job, you can help review their employer benefits with them, discussing choices like HSAs, health insurance and 401(k)s. As you do so, remind them of the value that comes with saving for retirement early, and how this can pay dividends in the future.

And as your kids are likely taking out their first auto loan or saving for a down payment on a home, take a moment to explain the importance of credit cards and staying on top of their debt.

No matter what stage of life your child is in, there is always opportunity to showcase the importance of financial responsibility. It will help them build a solid financial foundation, and help you sleep better at night. As you teach them these positive habits, don’t hesitate to bring your Baird Financial Advisor team in for a little extra support along the way.