Finance for the Next Generation
Many Americans are worried about the financial future of the country.
It's no surprise to anyone reading this article that the United States is in serious debt, to the tune of $28+ TRILLION dollars in the debt. If we wanted to get back to even, each taxpayer in America would have to stroke a check for around $226,000 (pretty tough when the median income hovers just above $35,000). How did we get here?
To start, we are a nation of spenders! If you take a look at countries like Switzerland and Sweden, the average savings rate is over 15%. The US? 4.9%. That's right: if every American reader of this blog made $100,000 a year, the average reader would only save $5,000 of it. But it's not just that we spend the extra $95,000. We spend more.
The personal debt per citizen (not taxpayer) is nearing $65,000. Almost $40,000 is owed per student for student loans. As the total credit card debt outstanding nears $1T, around $6,000 per holder of a credit card is owed.
With Social Security in serious flux and such a low savings rate mixed with tremendous debt, how do we fix this issue for the future?
We can start by educating kids early about money and finance. It's rare to find financial literacy courses in middle school, high school, or even college. Plain and simply: if we aren't teaching anyone about how finance works, how do we expect it to get better?
So where do we start?
How about as a toddler? Cambridge University did a study that found that 3-year-olds are capable of understanding money concepts. In fact, financial lessons kids have learned by age 7 not only can but WILL carry over for the rest of their lives. Here is a short list of things you can do to help guide children towards a better financial future:
- If they are young, give your kids an opportunity to work for their own money. You can help them set up a lemonade stand. Don't set everything up for them! Take them with you to buy the ingredients and help them understand cost of goods versus the profit.
- If they are bit older, make sure they obtain a part-time job. Whether its babysitting or working in your yard, understanding the concept of earning a paycheck and not just being given money is important. Make sure they understand that at least 10% of what they make should go towards savings.
- If they are high school or college-aged and have a part-time job at a company, sit down and explain to them the difference between gross income and net income and where the difference goes.
- Help your children understand credit cards and the dangers of them. Make it tangible. If they come with you to the grocery store, add up the items going into the cart one by one so they can understand the cost of things.
- Tell them why you said "no"! If they can understand the big picture of why mom or dad said no to the new PS5 purchase because of X, Y, and Z it can institute or reinforce the concept of money choice and not spending outside of your means.
There are many things you can do to help influence your kids and their financial futures but you have to take the onus upon yourselves to start early. Your kids aren't going to learn it in school and chances are they aren't going to choose to put down the iPad or TikTok to learn on their own so start now. I promise you they aren't too young.