A recent Charles Schwab survey evaluated the financial beliefs and behaviors of the next generation of Americans: young adults aged 16-25 [1]. The results proved enlightening. Overall, the group was optimistic about their future finances. However, the survey identified a number of potential obstacles to their financial success. Below, we highlight some of the survey’s findings, and offer suggestions on how to help your kids, tweens, and teens develop good money habits to empower their future financial freedom.
Encourage A Positive Attitude Towards Money
76% of young adults surveyed believe their future will be financially better than that of their parents.
The young adults interviewed are old enough to remember the Great Recession of the 2000s. Indeed, 81% of them have witnessed some form of parental financial hardship. Nonetheless, the group was generally optimistic about their own financial future.
A positive attitude towards money is an essential foundation for financial success. Understand how your own money relationship influences your kids’ outlook on finances, and always talk about money as a positive resource.
Discourage Unrealistic Expectations
53% of those questioned believe their parents will leave them an inheritance.
Unless your family’s ultra-wealthy, relying on an inheritance is a dangerous financial strategy. Parents and grandparents are living longer and pursuing happy, healthy lifestyles well into retirement, meaning that assets may well be spent down later in life.
Discuss family finances openly and honestly, including legacy plans. Encourage future wealth through a disciplined approach to saving. If your family’s well off, beware of the ‘Wealth Effect’ and help your kids develop realistic expectations about their future lifestyle.
Focus On Financial Literacy
9 out of 10 young adults surveyed said they learned about money from their parents.
True wealth education begins at home. SageVest Kids combines developmental milestones with fun financial activities and age-appropriate advice, creating an easy-to-follow financial literacy curriculum for ages 3-4, 5-7, 8-10, 11-13, 14-16 and 17-18.
Be A Good Money Role Model
69% of respondents think their parents are good financial role models, and 39% consider them the most trusted source of financial advice.
Children formulate their own perspective on money, based on your financial behavior. Be a good role model by managing your money well:
- Use a budget to balance saving and spending, avoiding extremes like overspending.
- Base money decisions in reason, not stress or emotion.
- If you’re half of a couple, stay engaged in family finances.
- If you’re separated or divorced, try to maintain a unified parental approach to money.
- Share your own financial experiences – good and bad.
- Recognize when you need professional help. SageVest Wealth Management, parent company of SageVest Kids, is a top-ranked, fee only, independent financial advisor.
Develop A Budget
85% of those interviewed think saving money is essential for financial independence, yet 49% have less than $250 saved.
The key to financial independence is managing cash flow, enabling saving towards short- and longer term financial goals.
Help your kids develop a budget that balances income, saving and spending, needs and wants. Paying your kids an allowance, assigning age-appropriate chores, and layering on purchasing responsibilities are all key to them learning successful money management.
Teach Your Kids About Debt
51% of respondents have some type of debt, averaging $8,000.
43% of those interviewed have borrowed money from their parents during the last year, and 25% have borrowed from friends. Almost a third has skipped meals due to a lack of money.
Debt is an obstacle towards future financial success. While it may seem counter-intuitive, it’s better to teach your kids about debt during childhood, when the consequences are less significant.
Teaching financial independence is also important for your own financial security. If you’re always bailing your kids out, you may be risking your own wealth and wellbeing.
Talk About Retirement
The majority of those surveyed expect to retire at age 60.
Even by today’s standards, 60 is considered early retirement. This requires intensive saving efforts to accomplish. Furthermore, by the time this generation reaches retirement age, Social Security benefits may be a thing of the past.
It can be hard for a young adult to visualize retirement and prioritize retirement savings. Yet the early career years are critical for retirement success, with strategies like funding a Roth IRA or Roth 401(k), compounding interest, avoiding lifestyle creep, etc. Encourage your kids to focus on retirement savings now, so that they can enjoy life later on.
SageVest Wealth Management focuses on whole family wealth, including financial education for the next generation. Please contact us to find out we can help secure the financial future for you and those you love.
[1] https://www.schwabmoneywise.com/public/moneywise/tools_resources/literacy_survey
