We turned to experts for the lowdown on how to manage your money and raise financially savvy kids.
There may be nothing as overwhelming as organizing your family finances. With childcare costs, mortgages, credit-card debt, college tuition, savings, investments … it’s hard to know where to begin. But gaining control of your fiscal future now is one of the most important things you can do for your family. By doing so together, your keiki can learn the value of money and grow into financially responsible adults as well. For guidance, we turned to experts for the lowdown on how to manage your money and raise financially savvy kids.
1. Finding a Financial Adviser
The first step to getting your family finances in order is selecting a trustworthy financial adviser. Not only can an adviser help you develop a plan, he or she can also offer a sense of security for the future. Marko Mijuskovic, a financial adviser with Wealth Strategy Partners in Honolulu, says, “It is our responsibility as advisers to make sure our clients have every single aspect of their finances in place, so that, if the worst-case scenario happens, they are taken care of.”
How do you find an adviser who is right for you? Ask about the adviser’s philosophy and point of view, and then determine if his or her values match yours. Also, there must be transparency regarding their fees and commissions. A good financial adviser will be upfront about all costs in order for you to feel completely comfortable.
2. Paying off Debt
Paying off debt first, especially what Marko calls “bad debt”—credit-card debt, personal loans, car loans—is key to your financial success. Some people aren’t aware of how much interest they’re paying, and some aren’t always willing to dip into their savings, even to pay off debt that is costing them more than their savings are earning. “It’s common sense, but people are so emotionally attached to their savings,” says Marko.
For example, he says sometimes a person will have $10,000 in a savings account, but they also owe $10,000 to credit cards that are charging 25 percent every year, and they’re paying $600 in minimum payments every month. “We recommend taking the $10,000 that’s only making them .01 percent a year and wiping these credit-card debts off,” he says. “You’re instantly saving 25 percent, because you won’t be paying interest anymore. Now, that $600 you were spending on minimum payments, you can put back into your savings.”
3. Saving 20%
Everyone knows they should be saving money, but some people aren’t sure exactly how much to set aside, or how much to invest in stocks. Marko and his financial team recommend setting aside 20 percent to 25 percent of your gross income every year.
4. Making a Plan
The next step is to work with your adviser to make a financial plan for the future. A good plan will cover you for life changes, such as a new house, a new job, more children or the unforeseen.
Creating such a plan can be a daunting task for busy families, and a financial adviser can simplify the process for you. A good adviser will map out the right choices for your situation, educate you on your options, and even anticipate some issues and concerns about which you may not even be aware.
Setting your family budget—and sticking to it—has never been easier, thanks to super-simple online programs such as Mint.com, PearBudget.com and MySpendingPlan.com. It’s quick and easy to enter your information, and your purchases will automatically be placed in the right budget categories. Some of the programs also have mobile apps that will send you alerts when you’ve gone over budget.
6. Affording Higher Education
“College education costs go up at least 5 percent every year, sometimes more,” says Marko. “But there are so many things people don’t consider: It’s not just tuition, it’s also the cost of after-school programs, trips, books, uniforms … all these things that come with schooling. People overlook these things. They know college is going to cost a lot of money. But it’s the cost of college and everything else in 15 to 17 years from now.”
7. Teaching Your Keiki the Value of Money
Children should be taught good money habits, and it’s never too soon to start teaching them how to save, invest and spend wisely. We enlisted the help of Lori Mackey, founder of Prosperity4Kids, Inc., for some guidance. A leading expert on financial education for children and a mother of two, Mackey offers the following advice to parents:
• Start Saving Early: “Statistics show our habits with money start very young,” says Mackey, “and surveys show that children with savings accounts have less stress and more hope for the future.” Ask your bank or credit union if it has any keiki programs, and start your children saving as soon as possible. “Small amounts of money saved and invested over the long term will prepare our children for just about anything their future holds.”
• Let Them Earn It and Learn It: Teach children that you have to earn money before you can spend it. Especially after our country’s economic crisis, Mackey explains, it’s vital to teach the next generation about managing money. “The sooner children understand that money is earned, the better,” she says. If your children have the “wants,” let them earn their own money to buy the things they want. Most of the time, children will spend more carefully. “I promise they will never spend their own money like they will yours,” says Mackey. You could also encourage your children to ask neighbors, friends or family members if they could use their help to earn some extra money.
• Re-think Allowance: It’s obvious that children are expected to help in the family, but instead of doling out an allowance as a reward, use it as a teaching tool, suggests Mackey. It’s a perfect way for children to create positive habits, break bad habits and learn how to become wise consumers. Follow these guidelines for best results:
- Don’t think of it as “paying” your kids. Think of it as teaching your kids how money works.
- Allowance should be based on your disposable income—not age, ranking or what the neighbors pay their kids.
- Take what you are spending on each child already and transfer the earning power to your child. It won’t cost you any more than you are already spending, but the financial lessons will be priceless.
- Assign chores that your child is not currently doing. Start out small and work up to bigger ones. Small successes will lead to big rewards for both of you.
• Watch Your Language: A common mistake by parents? Trash-talking about money. “Without realizing it, we talk negatively about money,” says Mackey. “Try to avoid saying, ‘We don’t have money,’ ‘It’s too expensive,’ or ‘Do you think money grows on trees?’ Instead, say, ‘It’s not in the budget right now, but let’s figure out a way for you to earn extra money for the things you want.’ Or, ‘We are in a saving mode right now and only spending money on items we need.’” These answers have the same outcome, but give kids the ability to view earning as something positive.
• Divide and Conquer: One of the most important lessons parents can teach children is how to divide their money properly. “Spending 100 percent leads to being penniless,” says Mackey. So, starting from their first dollar, teach your children to give 10 cents to charity, invest 10 cents, save 10 cents and spend 70 cents wisely. If you create this habit starting with their first dollar, she says, children will grow up living by these good habits.
• Start Talking About College Early: “College is a great conversation starter,” says Mackey. “As you are dropping coins into the piggy bank, you can say, ‘We’re saving this amount for your college education. The possibilities are endless of what you can do!’ You don’t have to go into details unless they ask. But teaching a child that you are saving money for something that is 15 to 20 years away is a priceless lesson.”
• Be Honest: It can be frustrating when kids constantly ask for things you can’t afford. But kids are natural-born “askers,” says Mackey, and most likely do not know your financial situation. In tough economic times, it’s best to come clean and work together as a family to get through them. You don’t want to scare your children, she says, but you can explain that money is tight right now, so you’re buying only what is necessary and saving the rest.
• Let Them Make Mistakes: Let your child make money mistakes early, suggests Mackey, and they will make fewer mistakes later in life. If they make an impractical purchase, hold back on lectures and simply let them learn from it. “It’s better they learn with a $10 toy than a $10,000 car,” she says.
Make it Fun!
The key to your keiki understanding money is to make it fun and a part of everyday life, like reading or writing, says Lori Mackey, founder of Prosperity4Kids, Inc. Here are a few of her favorite ideas:
“Money for Candy” Challenge
When your child asks for candy, make it a challenge for them. Mackey suggests giving them a dollar and saying, “Make sure you come out with as much candy as you can for that dollar!” Your children will have to do the math, compare prices and make smart choices, making the whole experience a valuable lesson.
Play Money Games
“You would be amazed at how many kids cannot count back change,” says Mackey. Try the simple “Buy and Sell” game at home. First, tag items around your house that are under $5. Then “purchase” these items from your kids, and make sure they can count back the change.
Strike Up Money Conversations
Ask your kids, “What are your biggest questions when it comes to money?” If they ask you something you can’t answer, admit you don’t know, and research it together.