Parents Need to Educate Children on Financial Literacy
Kids have now returned to school, and according to a recent study by Lincoln Financial Advisors, parents should supplement this education with financial literacy at home. Their research shows children are willing to listen, as 66% of Gen Zers (those born between 1995 and 2015) turn to their parents for financial advice.
The study recommended parents to focus on:
- the benefits of saving at a young age,
- how to allocate income, and
- the impact of debt.
“As a parent, I taught my children the value of a dollar and the basic principle of compound interest early on through what I called the ‘Daddy 401k Program’,” said David Stone of Lincoln Financial Advisors. “Typically, elementary school-aged children have opportunities to earn money through allowances and various household projects. We explained to our children they could spend money as they earned it, or invest it in a ‘Daddy 401k’ or savings account, resulting in more money at a later date.”
The youngest Gen Zers should focus on saving. Children have a number of saving options, including Uniform Transfers to Minors Act or Uniform Gift to Minors Act accounts or 529 plans.
The focus should shift as kids age. Parents should focus on teaching high schoolers how to allocate their money wisely. Children should allocate 10% to charity, 50% to a savings account and 40% for purchases. The study found they should be encouraged to use a checkbook.
It is also important to teach college-age savers how debt can impact their lives and how they can avoid it.
“Those who understand interest earn it. Those who don’t understand interest pay it,” says Stone. “Explain the power of compound interest to your children and make sure they understand that it works both ways: if you are making 6% interest, in 12 years it may double; however, the same rule could apply to debt.”