Teach your children well about money matters

My father was in academia and had no desire, or knowledge, to teach me and my sister about financial matters, except to say, “We can’t afford it” and “Money is the root of all evil.”

We plodded through life dreaming of being rich, but never understanding what to do to get there. All my sister and I were told was go to college and get a good job.

When I was 22 I thought I would be a millionaire by 25, at 25 I figured 30, at 30 I hoped for 35. In my late 30s I was able to learn the lessons that would be the difference between just making money and becoming financially independent. I spent 20 years making simple money mistakes that would slow my own financial independence.

Today, when I talk to clients and friends with young children, I find not much has changed. They received the same basic financial education I did and will provide little guidance to their children. There are books and seminars on wealth creation, but for the most part only the authors and seminar leaders are getting rich. There are infomercials about buying real estate for $6,000 as well as how to buy stock in any type of market and get rich, with the caveat, “these results are not typical.” The Internet has every possible get-rich-quick scheme. Bankruptcies and foreclosures are up, and consumer debt is at an all time high.

The public education system has, for the most part, failed to provide students with the basics about wealth creation and financial independence. What scares me is that our children will be as cavalier and uninformed about financial independence as I was at their age.

So how can we stop the cycle from previous generations that places such a stigma on teaching our children about money matters? Are you fortunate enough to have some family wealth (created or inherited) that you would like to sustain through future generations? Here are some invaluable tips:

• Teach your children basic accounting – assets, liabilities, income expenses. How do they relate to each other and how are they affected by our financial decisions? If this is not your strong point, take a course with your child (so they do not see it as punishment, rather education). There are lots of classes available, at local schools.

• Talk openly to your children about your family’s financial situation. Maybe they are not earning money for the family but they are affected by your financial decisions. You do not have to tell them, “Together, your mom and I make $78.263.00 and spend $78,260.00 every year,” but you can discuss basic concepts, including earnings, taxes and Social Security, saving, paying bills, debt obligations (especially credit cards), and how all of these factors affect your credit scores and financial decisions. Talk to them about making plans, such as a vacation or buying a car, and how to save for it. Talk to them about the best way to afford something and solicit ideas from them. My father just said, “No.” He never asked me to figure out a way to pay for something.

• Get your children their own checking and savings accounts (joint with you of course) so they can learn at an early age the concepts of managing money. Teach them to pay bills and save for things that they want. Hopefully you are balancing your own checking account every month so you can show them how.

• Open a brokerage account for your child and have them do research to buy investments. Give them birthday/holiday gifts of cash (they can earn their money to spend at the mall) and work with them to investigate investments. Once they have convinced you they have done their homework, make the buys for them.

• Treat your child’s primary education like a job. Work out a plan ahead of time and give your child the same motivation that gets us out of bed everyday to go to work. The biggest benefit of good grades is the chance your child will get scholarships that will pay for college or other types of post-secondary education. Your child also will develop great study habits early that will benefit him/her all of their lives.

How many times have you thought that you want what’s best for your children. Here is your chance to really mean it and give them a financial opportunity for life. Who knows? You may learn something for yourself along the way.

James Toye, who has more than 20 years financial services experience in New Hampshire, is manager of the TD Ameritrade branch in Manchester. He can be contacted at james.toye@tdameritrade.com.