Birds and Bees, Tuition and Fees: Raising Financially Savvy Kids

The sooner you talk to kids about money, the better equipped they'll be as adults. If all goes well, they won’t have to rely on the First National Bank of Mom and Dad.

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4 min read

Remember that sizzling egg commercial: this is your brain; this is your brain on drugs? Here’s another potential too-hot-to-touch topic between you and your kids: finances. Is money talk just as tough as the biggies (relationships and drug use)? Or do families just ignore it, assuming their children will figure it out once they’re on their own and in the workforce?

You should try hard to squeeze in this talk, too. Why? College costs are up sharply, according to The College Board. And, student loans are as confusing as ever. Plus, there’s economic and market volatility. We all dream of an easier time for the next generation, but it may not happen without our help. Or, there’s a chance that the first money talk your kid has will be with the credit card company rep handing out free t-shirts and new accounts at a campus fair.

So where do you start? The topic of personal finance sometimes bores adults to death, let alone our screen-absorbed teens. Not so fast. Financial literacy is becoming much more prevalent in pop culture and society. 

While parents may have only had three total television channels to choose from while growing up, today’s teens could easily stumble upon at least three channels dedicated exclusively to financial news. And financial information is readily available while your kids are participating in one of their most time-consuming activities: web-surfing.

We know what you’re thinking. Just because financial education is woven into the fabric of our society, it doesn’t mean teenagers will think it’s cool. But don’t let your own experiences cloud your judgment. When you think of a savvy financial guru, you may be picturing a professor with a white beard, tweed jacket, and a bow tie. On the other hand, your teenager might be picturing hoodie-wearing Facebook founder Mark Zuckerberg, who just padded his already plump nest egg with the proceeds from his firm’s initial public offering (IPO).

A recent survey found that nearly half of kids from Generation Z learn financial responsibility directly from their parents rather than from friends, counselors or school.

So gather up your confidence and sit your kids down to discuss financial matters right away. The sooner you start them off with good habits, the easier it will be for them to maintain those habits as independent adults. If all goes well, they won’t have to rely upon the First National Bank of Mom and Dad when they are off on their own.

Every family has their own set of specific financial considerations, but two main themes are: 1) Spending wisely 2) Saving wisely.

Spending Wisely

Whether your teenager receives an allowance or has a part-time job, a major challenge parents consistently face is getting their child to spend their earnings wisely. Opening up a checking account and helping them balance their account every month is a good way to get them more engaged in their finances. By crunching the numbers, they’ll start to realize that spending over half of their babysitting money on fast food and music downloads may prevent them from snagging the perfect prom dress or buying their first car.

Just as importantly, remember that you have a big influence over your kids. The most valuable financial lessons they’ll learn will likely come from you. Lead by example. Live within your means and don’t get extended on too much credit.

As tough as it may seem, don’t be afraid to tell your kids that the family simply can’t afford certain things. Their short-term disappointment can be a worthwhile price to pay to teach long-term financial responsibility.

Saving Wisely

You may have heard the story of Warren Buffett buying his first stock at age 11? While it sounds great in theory, it’s a lot harder in practice. In fact, according to a recent survey, most children in Gen Z have never heard of college savings vehicles like 529 plans even though most of them plan on attending college.

At first, kids don’t always understand valuation ratios and other financial metrics, but they find it interesting to learn about investing by using companies that they’re familiar with. For instance, researching stock information for McDonald’s (MCD), monitoring activity and then visiting the chain for an ice cream cone every quarter when dividend payouts are made.

Several adult Investools students bring their teenagers to seminars. One Dad, who brought his 14-year old to an Investools® session a few years ago was happy with their shared experience in learning about trading basics and financial literacy. Most teens will probably only study stock trading, but some of them catch the bug and continue on to learn options, currencies, and futures trading. Some adults may think the topic is too hard for kids, but the reality may be that it is easier to build the foundation for a financial education while young.

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WSJ Market Data Group Mark Zuckerberg Wealth-o-Meter measures Mark Zuckerberg’s net worth up to date with his stock. http://zuckerbergnetworth.com

TD Ameritrade Investor Index Survey titled Generation Z and Money Survey - Understanding Tomorrow’s Investors, June 20, 2012

Warren Buffet Wealth: Principles and Practical Methods Used by the World’s Greatest Investor; Robert P. Miles (John Wiley & Sons, Inc.); 2004

The College Board, CNBC, Facebook, and Mark Zuckerberg are separate from and not affiliated with TD Ameritrade or Investools.

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