Teach the chil­dren well (fi­nan­cially)

The Covington News - - BUSINESS -

Ideally, our chil­dren should learn good be­hav­ior from us. But when it comes to liv­ing within our means, and sav­ing and in­vest­ing for the fu­ture, we’re not set­ting such a good ex­am­ple. Con­sider the fol­low­ing:

• Sav­ings are low — The per­sonal sav­ings rate in the U.S. in 2006 and 2005 was neg­a­tive — some­thing that hadn’t hap­pened since the Great De­pres­sion. Thus far in 2007, the sav­ings rate has crept into pos­i­tive ter­ri­tory, but it’s still ane­mic.

• Debt is high — House­hold debt, as mea­sured by the ra­tio of debt pay­ments to dis­pos­able per­sonal in­come, has reached record highs over the past cou­ple of years.

Of course, your chil­dren aren’t re­spon­si­ble for our dis­cour­ag­ing sav­ings and debt trends. But if you’d like to help them boost their chances for achiev­ing fi­nan­cial sta­bil­ity in their adult lives, you can take a num­ber of steps, in­clud­ing the fol­low­ing:

• Re­ward chil­dren for sav­ing. Chil­dren, like adults, tend to re­peat be­hav­ior that is re­warded in some way. So, if you want your chil­dren to be­come good savers, you might want to match their con­tri­bu­tions, ei­ther fully or par­tially, when­ever they put money away, whether it’s in a big jar or a bank ac­count. Once they’ve saved a cer­tain amount, you may want to let them with­draw part of it to pur­chase some­thing they want.

• Ex­hibit re­straint in spend­ing. When you want to teach your chil­dren an im­por­tant les­son, what you do is some­times more im­por­tant than what you say. So, if you want to stress the im­por­tance of de­lay­ing im­me­di­ate grat­i­fi­ca­tion and avoid­ing ex­ces­sive debts, you might want to talk about some­thing like your car, if it’s older, and say you wish you could get a new one. When your child asks why you don’t, you can re­spond that you don’t have the money for it now, and you don’t want to bor­row too much money to get one, be­cause that would just mean a big pay­ment later on.

• Ex­plain prin­ci­ples of in­vest­ing. Even fairly young chil­dren can typ­i­cally un­der­stand what it means to in­vest in stocks, if it’s care­fully ex­plained to them. Use ex­am­ples of the com­pa­nies with which they may be familiar — Dis­ney, McDon­ald’s, etc. — and stick to the ba­sics, such as the abil­ity of any­one to own small pieces of th­ese busi­nesses.

You might even de­cide to buy a few shares of one of th­ese stocks and, along with your chil­dren, fol­low its re­turns.

• Give ex­am­ples of in­fla­tion. If you want your chil­dren to be­come fi­nan­cially lit­er­ate, they’ll need to un­der­stand the ef­fects of in­fla­tion.

Start them out with sim­ple ex­am­ples, such as the cost of candy or milk when you were a child ver­sus those costs to­day.

Then, ex­plains that as the cost of vir­tu­ally ev­ery­thing goes up over time, you need to put some of your money in in­vest­ments that can po­ten­tially grow faster than the rate of in­fla­tion.

By fol­low­ing th­ese ba­sic sug­ges­tions, you can help your chil­dren de­velop fi­nan­cial be­hav­iors that can serve them well through­out their lives.

Tom Sch­midt

In­vest­ment Rep­re­sen­ta­tive

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