Why Our Daughter is 19 and Financially Stable
The Best Single Thing I Did to Teach My Teen About Money
The financial downturn over the past few years may have you taking a look at your own “money IQ”. Many Americans learned a hard less in mortgage finance, balloon notes and variable interest in since 2008. Since discussions about personal finance and spending with your neighbors is social faux pas, the way we have judged our financial health is often by looking to the left and right. “How does my car compare?”, “Am I the only one without a pool?”, “Are they on vacation AGAIN?” What the visual comparisons cannot show you is how much your neighbor is in debt, how much they have saved, how much they rely on family for their subsistence. Your Teen is in the same situation! They may see the results of financial tensions indoors, but outside they see only suburban success stories.
My wife and I were living in a suburb of Tampa when we hit upon a part of our financial life that had gone ignored up until then. We really didn’t understand insurance; Whole Life vs. Term, Mortgage Insurance options, car insurance deductibles and limits, et al, and so we started looking for free online education tools. What we found was much better! A wealth of free coursework, some with an obvious agenda, that provides financial education. Set up by Mutual Fund Companies and Financial Advisors these online courses won’t make you a professional money manager, but can give you a enough information to make intelligent decisions. After going through our first free online financial course, we agreed that we could have saved thousands of dollars over our many years of marriage, and that we had to give our 14 year old daughter the head start we missed.
Of course, during our 3 or 4 weeks of class work we were constantly trying to engage our daughter, but like most teenagers she had much more significant and immediate concerns; homework, guys, friends, guy-friends, clothes, etc. Then summer came and a rare confluence of circumstances coupled with the felling of a parental moral pillar allowed us to pique her interest:
1st Circumstance: School’s out for summer. At 14 years old, she was too young to drive and tool cool to ride her bike many places, so lot’s of free time.
2nd Circumstance: Taste of success. She got her first babysitting gig and realized she could do pretty much whatever she liked with cash she earned herself.
Parental Cave: We changed our attitude about paying her directly for educational success.
We’d always agreed that money for grades wasn’t the way we wanted to motive our children. Both our 14 year old and her elder sister did quite well academically, so we felt pretty comfortable in this decision. The change came because now our daughter knew what it was like to trade her time for money and was anxious to do so, and we considered that our investing in her financial education would actually pay off in kind. If we paid her to go to the school of our choice, an online financial course, it would more than pay off for her in the long run.
The course we selected, which was very much like the Money 101 class available at CNNMoney.com, would take approximately 20 hours to complete. This 20 hours included some outside research she would have to do and a few practical sample budgeting exercises as well as actual multiple choice tests she would need to pass. The hourly rate we negotiated for this effort was a flat $100, or about $5/hour.
She completed the course, and learned some very valuable lessons that we’ve found it simple reinforce since then.
The 2 best exercises:
1) The practical part of one of the lesson chapters was to create your own budget. The course was designed for older teens with a regular job and car, so we got to add a bit extra. We had our young lady shop for a car and apartment online, and then find out what the average pay was for jobs she was familiar with and might get at a later age and do her computations from there.
2) She was given the task of discovering how much she would need to invest starting at 20 years old in order to get to $1,000,000. The magic of compound interest and regular investment made an impact. By doing her own calculations on contributing to an IRA early, she realized she could be rich (her term) by investing now and on a regular basis.
Did our young wiz come away with financial mastery? No. But now that she’s 19 years old and on her own in college, you can clearly see the results.
1) She has more money invested now than I did when I was 30
2) She’s incredulous at the size and terms of the student loans of her friends
3) She evaluates the luxuries people display by the amount it costs ( and whether or not they can really afford them)
4) She saves at least 10% of her income every month
5) Not only is she self-sufficient, but she has enough saved to take the summer off and travel to the Caribbean to stay with family for 6 weeks.
There has been much more involved in her financial education in the 5 years since complete that course that I’ll detail in later articles about financial education for teens. This first step, though, was vital to our success!