Usually, younger people use money to indulge in what is currently cool. Tomorrow, next week, next year.....eventually, the items like Hannah Montana dolls, Jonas Brothers music, and today's hottest cell phone fades into the pile of useless junk that had once entertained them.
Between $1 songs on iTunes, brand name jeans, and whatever new drink is being sold at Starbucks, advertising is ripping into our psyches and leaving with a few dollars where it can.
While most people want the best for themselves, many are unable to take advantage of what is best due to a lack of guidance. Kids who are taught to save are more likely to save later just as those who are taught to borrow and spend are more likely to do just that.
Young Children Should Have Savings Accounts, and Teens Should Have Jobs
Without money, a person cannot save or invest. All people find the means to spend, but without an excess of earning beyond spending, saving is impossible.
Having a job means that a person needs a bank account. People under 18 generally do not have checking accounts, meaning that teens will not have to balance a check book. Rather, they will have a passbook with their updated balances.
A great way to encourage a young person to allow his savings account to grow is to show him a bigger picture. This can be with an investment account. By setting a goal of opening a stock account or CD with the first $500 saved, a kid can get excited about doing something more with his money than just going to the movies. $500 is a very realistic goal to someone receiving about half that much each month after taxes.
Naturally, in the course of all this disciplined savings, kids should also be allowed to blow off some steam with their money. Setting goals with a shopping spree or a special day out can be a great incentive, encouraging youngsters to keep their eyes on the prize of saving for the future by thinking of the short term goal of having a lot of fun after all of their hard work.
Teach Children About Investments and Risk
Teaching young people about risk and their money is important. In doing so, a variety of opportunities from low risk investments, such as savings bonds, to more speculative ventures, such as stock and real estate trading, should be covered to the extent that parents can. Parents can arrange a meeting at the bank where their child does business to discuss various securities, even IRA plans.
The key is not make the kids experts, though they will be in their circle of friends, but to get their heads around the idea of a world that is even bigger than what they know. After all, during a lifetime of even average earnings, several million dollars will pass through their hands. If they were to do nothing more than save 10% of it, they would have between a quarter and a half million dollars when it came time to retire.
Children Should Allocate a Percentage to Savings and Investments
Saving and investing early will make the biggest difference later in life for people of any age. If a child was to earn $2,500 a year from the ages of 14-18, and then $5,000 a year until he or she graduated college at the age of 22, he would have earned $30,000. If only 10% was saved, this young man or woman would have a small savings whereas most people his age leave school with credit card debt.
With savings and no credit card debt, purchasing a home or buying stock is more obtainable than it would be if the situation was reversed.
Having a nest egg encourages financial stability. During an emergency, such as a car breakdown, a person with savings will not need a credit card. In the event that a credit card was necessary, it would be easier to pay off if the discipline of spending less than one earns was already in place.
Saving and investing money should never be seen as a means of hindering a person's childhood years, but as a means of strengthening their formative ones. While it is true that kids should be allowed to be kids by enjoying things that adults wish they could get back to, it is also true that most adults would be better off today if they had left home with a more sturdy financial backbone, and the financial discipline to match.
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