So what financial/investment advice do you/would you give to your kids?
http://www.nytimes.com/2016/06/18/your-money/the-money-letter-that-every-parent-should-write.html?emc=eta1&_r=0
So I do not usually respond to a thread that starts with a link. And I did not go to and read the link the op started with. I will just answer the thread title.
I’ve told this to my children and always tell my college students the same thing.
1 Start a retirement fund immediately. And take advantage of whatever your employer offers. If they offer 5% of your salary for your 3% contribution, do it. Whether it us 5/10, 4/12, do it. You are giving up income otherwise.
Save something every pay date. Even if it is only $20 a pay check.it will eventually make up 6 months of your monthly living in case you lose your job
Take advantage of your fringe benefits. Each of my kids in their 20’s have used their health care benefits. Don’t think you wont.
Roth IRA and Roth 401k
establish credit early - get and use sensibly a credit card while in school
My son has his first well paid internship this summer. (though he hasn’t gotten paid yet) We’ve discussed budgeting and saving for a long time. Pay yourself first is an important mantra - if you can save 10% of your salary from the time you’re young you will build up a nice emergency fund and retirement account. He does ask questions already like - how do you know how much you can afford for an apartment, how much should you spend on food. Once he gets a real job with real expenses…he’s got a paid for car and his internship covers housing…I told him we’d make a budget that he can then tweak. And I’ll hand him a copy of the millionaire next door. Budgeting doesn’t mean having no money, it’s telling your dollars where to go.
In addition to the above, I advise my kids to pay off the entire balance on credit cards every month. None of that minimum payment nonsense.
Contribute the max to 401k (or in my son’s case, 403b - he has a govt job) even if it brings your paycheck down low. We contribute to Roth IRAs on their behalf. Comparison-shop on things both big and small. My D seems to have inherited my H’s “love of the deal” - bragged recently rhat she found organic raspberries on sale for 88 cents versus regular $4.99 so she stocked up. The little stuff adds up! Bring your lunch to work; cook on Sunday for the week instead of take-out; be wise about your use of electricity (eg don’t air condition an empty apartment all day).
My kids were in town for Father’s Day and my H spent time with them going over various investment options for cash they have on hand, teaching them how to use Morningstar, Bloomberg, etc and discussing what the Brexit vote means in terms of timing. I wish I’d been taught to think this way.
Nrdsb4 - I don’t even think my kids know that you could just pay the minimum on a cc. To them cc’s are merely conveniences so you don’t have to carry around wads of cash. Of course they are paid off every month! They have seen a family member implode financially and so they are very aware of the power of budgeting and saving.
Having said that, I still do favors for them. If S comes up here, I’ll take his suits to the dry cleaner knowing that that amount is relatively trivial for me but a big deal in his budget. My D uses quarters to do her laundry so I gave her rolls of pre-wrapped quarters I’d recently gotten at the bank for my own use. And they go through our pantry, toiletries and cleaning supplies when they are here and fill in what they need. I’m ok with that. It’s my pleasure to help.
I’d recommend that this be an ongoing conversation rather than a one-off. S1 asks us a lot about how to manage his savings, and at our suggestion that he talk to someone with on-the-ground expertise, he got a fee-free investment analysis w/Vanguard through his employer. His 401(k) is at Vanguard already, so the advisor was familiar with what S was invested in. Mind you, I thought the advisor was a bit too aggressive on his investment recommendations (heavy on Int’l Index – right now?), but S is 25 and has a tidy sum saved and can handle risk. He’s also not in a hurry to make decisions and is already in an age-targeted blend with various index funds in his 401(k).
DH and I feel that we should have started more active conversations about money beginning in middle school, but the reality was that both kids were savers and really didn’t ask for a lot of "stuff’ – so there was no real need for them to budget. They had debit cards in HS through USAA so they didn’t need to carry cash, but most of the time, those cards had $25 or less on them. In retrospect, I think it would have been a useful exercise to have given them a set amount each month that would need to cover clothes, activities, transportation, etc., so they would have a better understanding of how much things cost.
Because I work in pensions and DH works in the financial markets, the guys would hear us talk about this kind of stuff, and gradually they started asking questions themselves (S2 was first, S1 became interested once he started getting summer jobs that more than covered his expenses). Both pride themselves on smart shopping and getting a good deal. S2 is especially good at it.
When S1 got job offers, he sat down with me to talk about the benefits package, how the medical plan worked, etc. Financial literacy is NOT just about putting money in stocks or mutual funds. Learning how to use the medical plan, submitting claims, using the network docs effectively and a reimbursement spending account is a biggie! I’d say about every other online chat we have with S1 is about financial stuff on one way or another. We don’t know all his details, but the questions he’s asking don’t require that info (and would just make me depressed ;)) He and the DIL also talked to us about money, and they found they were on the same page in that regard.
And if you have/are a boomerang young adult who’s living at home, you need to make it clear what you’re subsidizing and what you expect that adult to pay for. Car insurance, medical coverage, cell phone, gas, use of a car, room & board, – it all adds up. Even if you do that gladly, your young adult needs to understand that this stuff costs money in thr real world. My boomeranger has no clue what all this stuff costs, doesn’t want to get a car because he’s trying to save $$ to work overseas, and has one of my credit cards to take care of things I ask him to pick up for the household. (he also has his own credit card, and has about $300/mo in Stafford loans). Got the my credit card bill the other day and he’s charging his Metro fares and some lunches on MY card. Um, no. Just took that card back! He needs to understand that he needs to get off his duff and get a better job and get some cold reality splashed in his face.
tl;dr: Investment advice isn’t enough. Financial savvy applied to the real world is just as important.
I agree. My D was really happy that I went over her benefit plans with her when she got her first job. When she was offered a better job last year, she negotiated a higher salary by showing them the differences between her benefit packages and explaining why she needed more from them to justify a move. It’s not just the pay … there is more to it than that.
I agree with a lot of the things mentioned. I had my kids start Roth IRAs as soon as they had their first jobs in HS, they grew up with the always pay credit card bills in full. My oldest is interested in investing and money management, my second child not so much, so when he is through his upcoming move I am going to suggest he invest in a Target date fund for his retirement.
Live within your means.
No credit card debt.
If your job has retirement matching funds make sure you put in whatever it takes to get it.
Start a Roth IRA if you have extra summer money
Index funds are the way to go for most of us
I think it’s also helpful to talk about money - what you make, how much you pay in taxes, what food costs. I once said at a family meal I could easily drop a million dollars on a kitchen addition. After kids and dh were horrified at the number, I explained that I could also do it at a fraction of that cost, but that it was easy to spend a lot if you weren’t careful.
I don’t want my children knowing what we make, though. We don’t want anyone knowing, other than our accountant. Even our financial planners don’t exactly have the full story.
We are also private about our income. I think it’s quite possible to teach the kids about money without disclosing how much we have. DH is self employed, and a lot of our income comes from brokerage commissions and investments. It varies every year. Plus, DH doesn’t want the kids to decide that someday they’ll have a lot of money coming their way so wouldn’t need to develop a strong work ethic or not take his advice about saving and investing to heart.
I never tell the kids how much we earned. Only 3 people know, me and hubby and the accountant. I don’t want the kids comparing themselves to us and feeling like they don’t measure up. Nor do I want them spending my money for me - lol.
I gave my daughter 2 books: the Millionaire Next Door and Eric Tyson’s Personal Finance for Dummies. I harped over and over about always paying off credit cards in full. I also highly recommend Bill Bernstein’s If You Can at https://www.etf.com/docs/IfYouCan.pdf.
Does anyone have any resources they’d like to share for almost 20 somethings? My parents are up a creek without a paddle 20-30 years from now if things don’t change, and I don’t want to end up like my dad, wondering when I’ll be able to retire. My folks have given me vague advice (start saving as soon as possible, contribute to 401k, avoid debt) but that’s all. I like the Dave Ramsay approach (1k emergency fund > pay off debt > 3/6 months living expenses > retirement savings > college savings) and I have been wondering if that has any merit. Thanks in advance.
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I was surprised that my D16 did not select to join her labor union for her summer job this year. She joined it last year. I think she wants to get every penny of her paycheck and not pay dues. I’ll have to talk with her this weekend about the importance I place on union membership, the role of unions, and the benefits of union membership. This is part of an ongoing and transparent conversation (which she welcomes) we’ve been having on compensation, earning goals, credit, and other financial planning topics. (Maybe she didn’t notice the “Proud Union Home” yard sign in our front lawn.)
We’ve never told our kids how much our income is. It’s public record, though, so if they were really curious…
We do our own taxes and we don’t have a financial advisor. We’re a pretty vanilla tax return, and 90% of our assets are home equity or in retirement funds with really low expense ratios. Not much for an accountant or financial advisor to get excited about.
I also sing the “pay off the credit card!” song to my kids. Those interest rates nailed my parents when I was growing up.