Important Financial Lessons: Parents to their MillennialsSubmitted by Miller Financial Group | Red Oak Iowa Financial Advisor on April 4th, 2018
Imparting a legacy with your family is one of the most important things you can do in life. One of the ways to impart that legacy is to teach your children how to properly manage their money. According to a Pew Research Report, for the first time since 1880, young adults aged 18-24 (also known as Millennials) are more likely to live with their parents, than any other arrangement. Yikes! Some of the reasons include; the high cost of housing, lack of education, and the lack of availability of jobs in certain areas. Teaching your Millennial children important financial lessons will not only help prepare them for a successful life, but also reduce or eliminate the potential future strain of having your children live with you for an extended time period. While we all love our kids and some parents welcome the additional time with their children, it may force changes in your own life that you were not counting on. Things like requiring you to cut back your retirement plans or even force you back into the workforce.
Teaching your Millennial children financial responsibility is not only one of the hardest lessons for them to learn, but also one of the most important. By learning how to manage their money before they go off on their own, they hopefully are less likely to file for bankruptcy or have to move back home. Learning to be financially responsible is a huge achievement for any young person. These life skills can assist them tremendously as they become a working, contributing member to society.
Teach Them to Budget
Young adults can quickly identify their spending priorities, when they are the one that has to pay for their own extravagances! A cup of coffee every morning at Starbucks, brand name fashion wear, or the newest iPhone may become less necessary when they are now the one footing the bill. A budget can help them manage their money and determine which expenses are the most important to them. Start by having them write down every single purchase, no matter how small, for a week, or a month. Like a dieter writes down their food choices, this exercise will help provide your Millennial child with insight into their own spending habits. This can be pretty eye-opening! Then once the budget is finished, they can see exactly how much money they have, what their expected expenses will be for the month and how much money they need for incidentals, etc. Bad spending habits are now easily identified and hopefully they will discover the need to be wise with their spending habits.
Teach Them to Save More
Learning to save is the most basic lesson of all that we can teach our Millennials. By getting in the habit of saving, it allows them to develop a mindset for money management, avoid financial disasters and prepare for the future. The temptations to spend in a consumer-driven, I want/need –it-now culture is often too great to bear! But financial discipline instilled at a young age should help them to prevail.
Teach Them About Credit
Learning to properly utilize debt and credit is a very important lesson to impart upon our Millennial kids. For example, using a credit card in a responsible and productive way will help enable them to avoid bad credit and become successful with money management. It is important to discuss that credit cards are contractual loan agreements that must be paid back. Parents can also help their children choose the best card, explain interest on unpaid balances, payment schedules, and what benefits may be most favorable for them. Helping your Millennial child establish good credit habits may help unlock many unseen doors for their future.
Teach Them to Maximize Their Retirement Plans
After their budget and saving plans are in place, the next lesson is to teach your Millennial child about is retirement plans. If they work at a company that offers a 401(k), then they should absolutely participate. Companies often provide incentives such as matching contributions which will help their money go even further. Retirement plans provide tax deferral and compounding interest and returns. Millennial employees with a 401k can typically contribute 10% of their income up to a maximum of $18,500. Other retirement plans to consider include Traditional and Roth IRAs, which allow annual contributions of up to $5,500.
So start speaking with your Millennials about money as soon as possible. Involving them in the budgeting and investing process with your own finances may help break the ice and create memorable, yet instructive lessons. Too often young adults don’t have enough information regarding financial decisions until they are forced by circumstances to deal with them. By imparting your knowledge now, you can help remove their fear about financial matters in the real world. As parents we all want to help our Millennial children take on the world in a financially savvy manner!
By Daniel S. Miller, CFP®
President, Miller Financial Group, Inc.
Daniel S. Miller is an investment adviser representative of, and securities and advisory services are offered through, USA Financial Securities Corp. Member FINRA/SIPC. A Registered Investment Advisor located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Securities.