In The Details

Financial Articles from Hefren-Tillotson

Money On Your Mind: The Risks of Not Talking to Your Kids About Money

Written by
September 3, 2015

BernsteinTodays parents are more involved in their childrens lives than ever but not when it comes to financial education. As a result, many children have to re-invent the wheel when they become adults, needlessly struggling to attain the financial knowledge of their parents. Whats the big deal you ask? Here are the top risks to sending your young one off into the world financially illiterate:

  • No bank account. How is your child going to pay a first bill or deposit an initial paycheck without a bank account? While many banks offer excellent student checking accounts, not every student is going to know which bank to select and what account features to choose. Do your child a favor and get that bank account set up before that first paycheck ends up in the laundry. Make sure your kid knows to watch out for bank fees, especially overdraft fees which cost consumers billions of dollars each year.
  • Ignoring bills. Due dates seem like obvious hard deadlines to seasoned bill-payers, but not to a young person. Your child may have no experience writing out checks, addressing envelopes and mailing them out. Ask yourself does my child even know how to buy stamps? Walk your child through the basics of bill paying before less nurturing debt collectors teach your kid about the consequences of late payments.
  • Credit card debt. While new laws in 2009 limited the ability of people under 21 to get credit cards on their own, young people still get access to them. One third of college students with credit cardsincur interest each month. While older adults may realize that 15% or 20% interest rates are outrageous, young people may have no frame of reference to understand how high interest borrowing can lead to bad outcomes. The average household with credit card debt owes about $16,000. Is that the legacy you want for your child? Monitor childrens credit card use and teach them to use cards responsibly, paying off the full balance each month.
  • Never saving. While you understand it is much better to save for retirement early in life, it is a hard concept for kids. It takes time for young people to feel comfortable investing. Have your child learn by doing, taking your kid through the process of opening an investment account (tax advantaged like a ROTH IRA if eligible) and then saving a set amount each month. Even $25 or $50 a month is a good start. Getting your child saving at a young age establishes the investment experience that will serve your kid well for the rest of his or her life.

Take a few minutes to think about the essentials of your financial life (credit cards, bank accounts, investments). Does your child know how each of these work? If not, explain them and teach your kid how to get started in the financial world. By being pro-active, you can put your child on the path to financial security and self-sufficiency while saving yourself the headache of bailing out your kids money mistakes.

Jonathan Bernstein is a Senior Research Analyst within Hefren-Tillotson’s investment advisory group. Jonathan is a graduate of Yale College, a Chartered Financial Analyst charter holder (CFA) and a CERTIFIED FINANCIAL PLANNER certificant.