Teach Your Children to Save

The statistics are staggering warns Christopher Krell CFP CFS a leading national authority on personal finance investment taxes and charitable giving. Consumers need to resolve to pay off credit card debt and we all need to teach our children not to rely on it he added. Krell was referring to the recently released 2015 Credit Card Debt Study: Trends & Insights done by CardHub comparing Federal Reserve statistics.

The report finds that the $52.4 billion in new credit card debt that consumers added to their tab in fourth quarter of 2015 is the largest fourth-quarter buildup since the Great Recession42% higher than the post-recession average for the fourth quarter of the years 2009 to 2014. The report also points out that the year ended with consumers owing $917.7 billion to credit card companies with the average household with credit card debt owing $7879. This is the highest amount since the Great Recession and roughly $500 below the tipping point CardHub identified as being unstable.

In an environment such as this it is difficult to set an example for your kids said Krell. When they see mom and dad constantly reaching for the credit card they begin to think that living in debt is okay. It is imperative that you teach kids now to save even if its a life lesson in dont-do-what-we-do. While some schools at the high school level are beginning to add financial courses many schools still do nothing to teach fiscal responsibility. As a parent it is up to you.

Children as young as three years can begin to grasp the concept of saving and the value of money Krell advises. He goes on to provide the following tips to help put your children on the right track:

Teach children the value of money. Come up with a simple allowance and ways they can earn some money for additional chores around the house (not those theyre expected to do). Set aside three jars or envelopessave spend donate. Have them divide up what they earn between the three jars or envelopes and explain the importance of each.

Teach them the value of compounding. Once they have enough money in the save category open up a simple passbook account and explain how the money will grow in five years etc. Explain the importance of having money for college retirement etc. Find an easy compounding calculator online and show them how the money grows through compounding.

Set up a college fund. As the saving grows you might want to set up a college fund or 529 Plan so that other family members can add to some of their savings. Online college calculators will tell them how much theyll need for college including living expenses.

Teach them value in comparison price shopping. The grocery store provides a great learning environment for children. Show them simple things like paper towel prices and have them find the least expensive item. Show them generic labeled items and explain why they cost less and how much savings there is by comparison price shopping. Children as young as five can grasp the concept. Have them assist in selecting some of the items on the grocery list by price comparison shopping.

Be honest about your financial situation. If you owe credit card debt explain to your children about the debt cycle and why its a bad idea to run up credit card debt. If you dont owe tell them why you dont use credit cards. The more they understand about the dangers of debt the less likely they will be to incur the same. Children ten and over can be taught the compounding of credit card debt and the numbers of years required in paying just the minimum fee.

Teach them the value of giving. Its important that children learn at a young age about giving as well as saving and spending. Find a local shelter or food bank and take your child there to see the people to whom he/she is donating. Schedule some time to volunteer and take your children with you as well. They will learn the importance of giving time as well as financially and theyll see others who are less fortunate and begin to appreciate what they have.

Teach them to wait for things. Credit card debt is often a function of impulse buying. Teaching children to wait and save for the things they want will help to make them more responsible with money.

Provide college kids with a low-limit credit card. You can co-sign on a card youre your child is 18. They have to learn somewhere how to handle credit so being able to do so with parental oversight is the best case scenario. At the same time you can teach them the value of a good credit score as well as how to pay off the card on time monthly and not incur interest.

Teach good work ethic. So many parents cant stand to see their kids struggle and they do them no favors by giving them everything. By working and earning the things they want your children will have a healthy respect for money and will begin to understand responsibility.

Teach them about the value of investing. Being able to educate your children on the importance of having a solid portfolio thats well invested is critical. If you have a good family financial advisor or know of someone ask if he/she will spend some time with your child/young adult in discussing the importance of establishing a solid retirement account and an investment portfolio.

Remember its never too soon to start teaching your children the value of money said Krell. The worst thing we can do is never speak with our kids about money saving spending and giving and then expect them to go out into the world to try to figure it out on their own. Its a recipe for disaster. Krell also advises that parents should sit with their children while in their teens and regularly thereafter as they grow and mature and discuss the family financial details. All older children should know their parents wishes if they die where to find the will whats expected what are the assets real estate holdings etc. added Krell who holds regular family summits with clients who find it too delicate to discuss the familys financial details on their own. Leaving your children to figure it out after you die makes a difficult situation all the more so and can lead to family rifts and stress that could have been avoided if everyone had known before.

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About Christopher Krell
Christopher Krell CFPCFS is a principal with Cassaday & Company Inc. He has won many awards and accolades throughout his 18 years with the firm including most recently Top Financial Advisors 2015 from the Financial Times and was ranked sixth by REP Magazine in its 2015 list of the Top 50 NextGen Independent Advisors in the U.S. for the past two years. Krell has established himself as a trusted financial planner and advisor. For more information visit www.cassaday.com/who-we-are/our-team/Staff/Krell-Christopher.