At what age do you start talking to your kids about money? If you're asking that question, most pros say, you're already late.
Financial expert Mark Lamkin of Lamkin Wealth Management says one of the biggest mistakes you can make when it comes to kids and money is to NOT talk to your kids about money. Bad habits now lead to bad decisions that will stay with them a lifetime.
Here are five things your kids need to know about money.
1. The difference between wants and needs.
Kids are all about want-want-want (wha wha wha). They see something, they want it. They don't think about the mortgage payment or the phone bill; they think about stuffed animals, new sneakers - and candy. It's your job to teach them the difference between a want and a need - and to make sure the necessities get met first.
2. Regular Price or On Sale?
You have to teach your kids to shop smart - and what better way than to involve them in the financial decisions of the family.
Talk to them about how to stretch a dollar, whether it's clipping coupons at the grocery store - or deciding to take a vacation in the U.S. instead of to a foreign country when the dollar's down, Francis advises.
3. How credit cards work.
Credit cards are easy money but that doesn't mean they're free money - and that's an important lesson to teach your teenager when they start wanting to go to the mall without you.
It's good to give them a little leash, the pros say - to build their financial independence. You can't hover over them and press all the buttons for them. But make sure you're watching what they're doing - you have to "stop credit-card conundrums in their tracks" Francis advises.
4. The importance of compound interest.
It's not enough just to teach your kids that they have to save - you have to teach them how to save smartly and have their money working as hard for them as possible.
If you put all that tooth fairy and birthday money in savings account earning 1 percent or less a year - it may come as a huge disappointment when they grow up and find out that chunk of money isn't nearly as large as they thought it was.
Compound interest is when you are earning interest not just on the principle amount invested, but on the entire amount as the account grows and earns interest. In other words, you'll be earning interest on your interest.
5. How to buy a stock.
Dworkin also suggests opening brokerage accounts for your kids - teach them how to take part of their total holdings and put it into something that's going to make more than 1 percent a year.
She opened brokerage accounts for her kids when they were five. Of course, she managed the accounts then, but later recommends allowing kids to partake in the decision-making process.
Remember: The amount of risk you can have in your portfolio is at its highest when you're young and decreases as you get older. Dworkin said she'd go as high as 80 percent for kids - having 80 percent of their money in equities or other high-yield investments. If they're young, the other 20 percent can be in a savings account or money market. As they get older, move 5 percent into a checking account and keep the other 15 percent in CDs. CDs don't have compound interest but they tend to have higher interest rates, which makes them an attractive, yet safe, option.
Maybe you put all that tooth fairy and birthday money into the brokerage account and use their allowance for the checking, savings account or CDs.
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