We all want our children to be successful and happy. And though being financially fit won’t make anyone happy in and of itself, it can at least take away money stresses and allow the kids to pursue happiness. Just in time for Financial Literacy Month, three journalists from the Wall Street Journal offer 10 great tips in the video below.
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Here are the 10 tips from Jonathan Clements, Karen Damato and Jason Zweig, with a little of my own commentary. Our kids should know the importance of . . .
- Nurturing their credit score. Good credit scores mean not only lower mortgage rates but also lower costs in other areas such as insurance. Tell the kids to pay bills on time and stay on top of credit scores by checking on a regular basis. Sites like CreditKarma and CreditSesame offer credit scores for free.
- Investing simply and cheaply. Simple portfolios like the lazy portfolios I’ve written about before are the ticket. Tax implications make it much more expensive to get out of bad funds later in life. That’s advice I wish I had received three decades ago.
- Making their smartphone earn its keep. Phones allow them to budget and track credit card expenditures, plus they can give alerts when the bank account hits a danger level. Feedback is key to changing behavior.
- Stopping before they spend it all. After graduating from college and starting their first job, the kids are bombarded with all sorts of tempting credit card offers that can get them hopelessly in debt. To resist the temptation, the kids can harness the power of peer pressure by telling friends what their financial goals are, or even posting their goals on sites like stickk.com. This peer pressure will encourage better behavior.
- Never turning down free money. Tell the kids never to miss an employer 401(k) match. That’s just turning down free money.
- Favoring a Roth over a traditional individual retirement account. Traditional IRAs provide an immediate tax break while a Roth gives no immediate deduction but all its growth is tax-free. Because first jobs usually pay less than those later in life, the value of the deduction now is typically less, making the value of the tax-free growth greater in relative terms.
- Paying off debt the right way. Prioritize debt with the most expensive debt being the first to pay off. That’s especially true if it’s credit card debt that isn’t tax-deductible.
- Keeping fixed costs low. If things change and they must cut spending, it’s hard to cut fixed costs such as the big mortgage, expensive apartment or new luxury car bought on credit. Keeping these costs low provides flexibility.
- Having fun doesn’t need to be expensive. This resonates with most of us who are farther along the path of life. Who doesn’t look back nostalgically to the days of being young and living modestly in a tiny one-bedroom apartment and remember that time as being among the happiest of our lives?
- Helping you to help yourself. Rather than give the kids money for a vacation or car, let them know that you will help them with their financial fitness. Perhaps you can match their savings, helping them fund a Roth IRA. Obviously, this is only if you can afford to do so.
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This is great advice, and quite timely for me since I have a son who is a stone’s throw away from college and independence. Passing this wisdom on to your children could put them on the path to financial freedom. Living more frugally and investing wisely will give them the freedom to pursue whatever gives their lives meaning. That part, however, they will have to discover on their own.
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