Teaching Your Kids About Money - Part 3

"I want my children to have a good start in life."

Don't we all? No, that doesn't mean spoiling them rotten, though we often wish we could. We want to give them a solid leg up so they can achieve their own financial security.

Fortunately, there is much you can do to help bring that about and to help assure that your children, whether still in a high chair or already in high school, can enjoy a lifetime of financial security.

1. Start young to help them understand the concept of money and how it works. When my daughter was four years old, she'd help me pick out toll money when traveling by car. When we'd go shopping, I'd casually explain why I bought one brand versus another. "By getting this one, we can now afford to go out to lunch with the money we saved."

2. Help them cultivate the savings habit by establishing a savings account at your bank or credit union. Set it up in their name and encourage them to make regular deposits. One way is to match their deposits. Let's say your ten year old son saves $5 a week and you match each deposit dollar for dollar, so a total of $10 goes into the account each week, or $520 a year. When he's ready to buy his first car in a few years, the down payment, if not the whole amount, will be waiting for him.

3. Teach them how to spend money. That also means letting them make mistakes. When I was a kid, I blew a whole dollar on penny candy, one hundred pieces. It sounded like a good decision at the time, until the ice cream truck came down the street that evening and I had no money. No, I didn't get ice cream that day, though my parents did explain how I could have had some candy and some ice cream if I had chosen more wisely. The point: Take a proactive approach to educating your children about money and how to use it wisely.

4. Set up a college fund This link will open an external site in a new browser window. and help them save money for college. If you care about your children and want them to have the best possible opportunity for a financially secure future, make sure they have the opportunity to get at least a four-year college education. Every bit of research done on the subject shows that there is a direct correlation between education and income.

More ideas for helping your children achieve financial security:

• Begin their retirement IRA now. This may sound silly at first — setting up a retirement IRA for your ten-year-old — but it's never too early to start. If they earn an income, your children can begin making IRA contributions at any time. (Or, like many parents, you can make the contribution in their name, provided they have verifiable income.)

Let's say your 15-year-old earns $500 this year doing part-time work. Contributing $500 of your own money into his or her IRA may be a good investment in your child's future. This gets the ball rolling. Eventually, your child makes his or her own contributions. Then imagine 50 years from now: Depending on the average return, he or she could potentially be a millionaire several times over. And it all started this year because you helped set up that IRA.

• Update your life insurance program. As long as your children are minors, they are dependent on you for their financial security. If you die prematurely, all your dreams for them could be jeopardized. That's why you should make sure your life insurance program reflects not only your own needs and current income, but your goals and dreams for your children. How much is enough? That's your call. The best bet is to get good information. Discuss your needs — both current and future — with your agent. And don't put it off. Some things are too important to delay.

• Start their life insurance program by purchasing coverage on children as early as possible. Their rates will never be lower. Many will allow them to increase their coverage at certain key times in their life — such as when they turn 21, marry, graduate from college, or have children of their own. In this way, you are helping carry on the legacy by helping your children protect their children.

The bottom line: If you love your children, hugs and kisses are one way to show it. Another way, one that will stay with them and prove itself day after day for the rest of their lives, is to help them build their own financially secure future.

Teaching Your Kids About Money - Part 1

If 14-year-old Damon Williams can become an investor, and accumulate $50,000, so can you. Williams, a member of a junior investment club in Chicago, has been learning about stocks, mutual funds and other investments since he was six. Currently he is featured on an episode of the public television series, MoneyTrack, entitled “Kids and Investing."

He is an excellent example that when it comes to teaching your chidlren about money. Kids are never too young to start learning about the importance of money and how to start saving for their futures.

Talking to your kids about money requires that you explain the concepts in ways that they can understand. When they realize that money decisions determine 90% of the decisions they make in life, such as whether or not they can afford to spend time with their friends; where they buy their clothes; whether they can purchase one music CD this week or two, the concept of saving and having money will become very important.

Here is a simple overview of how to begin the conversation with your kids.

Explain That There Are Two Ways to Make Money
People at work and money at work

• People at work — that's when you work at a part-time job, cut the lawn, earn money. We all do it. Most adults work about 40 hours a week, 50 weeks a year, for 30 or 40 years.

• Money at work — that's when you put aside a portion of every dollar you earn or receive. If you invest it wisely, this money can make money for you.

Kids can start learning about stocks, mutual funds and other investment vehicles, from the following sources:

• Parents

• Talk to your school about setting up an investment club

• Visit Web sites about investing for minors

• Have a goal - Perhaps it is to retire at age 30; to take the pressure off your folks and pay at least a portion of your own college education; or to sock away enough money for your first car. Decide the amount you need and the date you want the money to be available.

Include Your Children in Saving for their Future
You have a number of options

• Develop a system for you and your child to put money aside on a regular basis. Let's say your child has a job and a goal to have $500 for a new _________ (you fill in the blank here) two years from today. That means (ignoring interest your money may earn) you need to set aside just under $4.81 a week (4.81 x 104 weeks = $500.24).

• Figure out where the money will come from. Some minors take a percentage of everything they earn or receive (such as 20%) and put it toward their wealth-building goal. Others talk to their parents or grandparents about "seed" money (an initial amount of money invested to build wealth).

• Select investments that interest your child, whether it is shares of their favorite apparel store at the mall, electronic game manufacturer, computer, etc. When an individual buys ten shares of, say, Dell Computers, explain that this makes your child a part owner in the company. That's also why some minors put companies such as Disney, Nike, The Gap and McDonald's on their stocks-to-study list.

• Stick with quality. That goes back to doing your homework. Remember, the goal is to make money, not lose it. Find a company you and your child likes AND that looks to be a quality investment. Please keep in mind that with any investment, there is the risk of losing money. Steer clear of hunches or companies that simply have names that sound intriguing.

• Get good advice. There are a lot of people who can help you learn and made good decisions. One place to start is with a company like Alero Equities. Together with your parent or grandparent, our representatives can discuss your goals and offer direction and guidance.

Remember This: Money Begets Money
Take advantage of compound interest.

Put the money into a reliable vehicle and let it work for you. Slow but steady won the race between the tortoise and the hare. In other words, don't expect to make a fortune overnight. Successful investing takes time and patience. Forget stories about instant riches. Set up a plan and stick to it. That's the best way to help assure your long-term success.

The bottom line: Now is the time to begin teaching your children about the ins and outs of investing and wealth building. This helps you lay the foundation today for your child's long-term financial security. Contact Alero Equities at 1-866-354-5125 to schedule an appointment to discuss you and your child's investment plan.