A Lasting Legacy: Six Foundational Lessons of Financial Planning and Wealth Management to Teach Your Children or Grandchildren
People love to give back. For many, being significant in the lives of others is a way of life. Whether you’re doing your own financial planning or working with advisors, here’s a key takeaway: financial planning can maximize your potential to give back.
If giving back is important to you, teaching friends and loved ones key principles of wealth management and financial planning empowers them to do the same. Educate and encourage them with your knowledge. Here are six important topics of financial planning and wealth management literacy where sharing your knowledge can improve lives.
Lesson 1: Balancing a Checkbook
The key lesson concepts: keep track of how much money is going into an account and how much is being taken out, while having in mind saving and spending. These concepts apply whether to checkbooks, apps for monitoring money, or bank software used for budgeting and are important to learn early.
A Palmerston Group Favorite Financial Planning Resource: How to Balance a Checkbook
It's good basic information about how to balance a checkbook.
Lesson 2: Budgeting
Especially upon entering college or starting a career, people should be prepared to manage monthly expenses, like food and supplies, rent, insurance, utilities, a mortgage, car payments, and other needs. Then, too, there are “wants” to consider, like optional shopping, excursions, and dining out.
A good starting point can be a rule of allocating 50% of after-tax income to needs, 30% to wants, and the remaining 20% to savings. Establishing this rule can be a gateway for inculcating how critical budgeting is to achieving financial planning objectives.
Two Palmerston Group Favorite Financial Planning Resources:
A good one for children: Teach Your Child the Value of Money
And for teenagers: How to Teach Your Teen to Budget Like a Pro
Lesson 3: Credit Card Use
Key concepts to impart include: what is charged with a credit card must be paid back; when there’s a balance on the card, there’s also daily accrual of interest; if charges aren’t completely paid off each month, the monthly bill can depend greatly on the interest rate. It’s very important that teenagers absorb these concepts as soon as possible, and all the more so, how not to accumulate large debt from interest. The education into the potential dangers can protect them from large amounts of avoidable debt, especially in the face of highly effective marketing by credit card companies encountered later, for example, in college.
A Palmerston Group Favorite Financial Planning Resource: 5 Rules of Smart Credit Card Use
Note: The Motley Fool often blends advertising into the conclusion of their articles, so beware. But the overall substance here is valuable.
Lesson 4: Building Credit
You’ll want to emphasize how important finance-related transactions like buying a house, purchasing a car, or qualifying for an apartment can be as an adult. Explain how they can be made easier and sometimes less expensive by having a good credit score and how they can be made much more difficult by having a bad one. Convey that having a good credit score requires good financial behavior, like paying bills promptly, maintaining low balances on credit cards, and restricting the number and activity of credit card accounts to what’s really needed.
A Palmerston Group Favorite Financial Planning Resource: How to Build Credit
A good overview from Experian.
Lesson 5: Starting a Business
Although “how to start a business” might not be of interest to someone in high school, education of the basics can serve two useful purposes. It can stimulate thinking about a potential career path from starting a business and provide basic business knowledge that would be useful if starting a business became of interest later on.
A Palmerston Group Favorite Financial Planning Resource: 6 Ways to Help Your Kid Start a Business and Learn About Life
The resources are immense, but this is a great, common-sense jumping-off point.
Lesson 6: The Stock Market and Wealth Management
Why not introduce a teenager to the basic workings of the stock market? Doing so can impart a fundamental understanding of how important investing can be to realizing larger financial objectives. Even if a teenager started small in the market, years later, the returns could turn out large. Early knowledge about the workings of the stock market and long-term investing could have a great impact and be especially appreciated later on.
A Palmerston Group Favorite Wealth Management Resource: Joel Greenblatt, The Little Book That Still Beats the Market
A clear, well-written story that can be read aloud and discussed.
By starting as early as possible to teach your children, grandchildren, or anyone you care about, these basic lessons of financial planning and wealth management, you are being incredibly significant in their lives.
Help them practice these lessons in their own lives and communicate your values to them in the process, and you will empower them. And that power travels way beyond helping them make better financial planning decisions in the future. You also will help them acquire the attitudes and know-how to eventually engage, just like you, in the deeper kind of financial planning and success that can maximize their potential to pay it forward on behalf of others.
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