Preparing for the Day They Leave the Nest
Talking to kids about money every day and modeling good financial behavior are essential if we are to raise children whose adult lives are not going to be enslaved by consumer debt. If you think “enslaved” is harsh or overly dramatic, consider this example provided by Joshua Kennon, author of Investing for Beginners.
Think about the monthly expenses of a young adult of moderate lifestyle starting out in the world: a cell phone bill ($50), a car payment ($275), insurance ($100), and rent ($500). These very basic expenses total $925 – that’s $11,100 annually for a phone, a roof, and a car.
Now put these few expenses within the context of a potential starting salary for careers like an accountant ($38,000), a mechanical engineer ($55,000), or a public relations consultant ($45,000). Respectively, $11,000 amounts to 29%, 20%, or 24% of these gross salaries. Food, clothing, gas, and entertainment have not yet entered the picture. Kennon asserts that spending decisions in these everyday areas – often on trivial items – determine the financial success of young adults.
True, your child might hunt for the best bargain when planning a big-ticket item, like a computer purchase. However in a two-week period, he or she might spend $50 on dinners out, $5 at the gas station for a soda and a newspaper, $18 at the movies, $75 on athletic shoes, $30 on video rentals, $85 for tickets to a concert, and $9 for a latté and biscotti. None is an outrageous expense, but together, they become significant: $272 in just two weeks. Kennon calls it “spending your millions one dollar at a time.” It’s easy for young people (and the rest of us) to unwittingly dribble away savings on trifles.
Alternatively, Kennon says, by investing $3 a day, a young adult can be a millionaire by retirement. Young adults without an awareness of working within financial limits can quickly amass debt trying to support a lifestyle equal to the one their parents provided for them. What happens to setting aside money to begin an investment portfolio, save for a home, or go on to school? These goals often get pushed aside in favor of paying ever-growing balances, the result of easy credit.
Our days are full of opportunities to talk about money with our kids – long before they leave the nest. Sometimes, we may see an opportunity, but we’re too rushed to take the time to talk about it – so we let these valuable real-life lessons slide. How good are you at recognizing and using these lessons? Take the Daily Opportunity Challenge on TheMint.org and find out!
Visit TheMint.org for more great ideas to help you help your children become money smart.
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Reprinted with the permission of Northwestern Mutual. © 2007 Northwestern Mutual.
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