Teach your children how to handle their own finances 1

Teach your children how to handle their own finances

California gets an “F when it comes to preparing our children for the real world of money,” says a recent report by the Champlain College Center for Financial Literacy. The center graded every state on its efforts to produce financially literate high school graduates, and California scored close to the bottom. There’s no effort to teach the basics of personal finance as part of the state’s core graduation requirements. Nationwide, financial literacy is sorely lacking. A 2017 survey found that 57 percent of respondents had less than $1,000 in cash savings.We must teach our children about money and finance to fill this dire void. So, what tools should we provide them to make wise, informed decisions on the big and small financial matters they’ll face as adults?


Understanding compound interest

This one is critical. Given enough time, even modest rates of growth add up: at 7 percent annual growth, an investment will just about double in ten years (and by comparison, the U.S. stock market, as measured by the S&P 500 index, has grown about 11 percent per year since 1980, which means the market doubled about every seven years since that time. At 7 percent, $10,000 grows into $76,000 in 30 years and $150,000 in 40 years.

I am learning how to invest wisely.

Do not get carried away with investment fads and trends. Stick to essential diversified investments, focus on long-term returns, and do not worry about short-term volatility. Teach your kids that if it sounds too good to be true, it probably is!

Building an emergency reserve fund

Strive to set aside at least six months’ expenses in a liquid savings account as an emergency reserve. This can help ensure that unexpected costs—such as an auto repair bill or health crisis—do not derail your life.
Not all debt is bad. If we all had a choice, it would be nice to live debt-free. But for most of us, it is often the only way to afford life’s higher costs. For example, a mortgage is the only way most of us ever get into a home. Auto loans can be helpful, as can student loans, to help you earn more and have a more meaningful life. They are avoiding credit card debt.

Credit cards are helpful for convenience, but should not be used to support lifestyle decisions. They should be fully paid off monthly to avoid interest rates of up to 20 percent if just the minimum payment is made. Young adults need guidance on shopping for the right card: finding ones with lower rates and no annual fee.
I was maintaining a good credit score. Young adults need to learn that every late payment is recorded on their credit scores—and once you go below certain thresholds, loans become more expensive or impossible to get, job offers can be revoked, and apartments are impossible to rent.

Knowing how to open a bank and an investment account and how to take out a loan, read the fine print.
Are there pre-payment penalties? Is there a lock-up or surrender period to exit an investment? This is common with annuities and other life insurance products. What are the total fees? What is the real cost difference between a fixed-rate and a variable-rate loan or a loan with different terms (a 15-year mortgage versus a 30-year mortgage)?


I am a writer, financial consultant, husband, father, and avid surfer. I am also a long-time entrepreneur, investor, and trader. For almost two decades, I have worked in the financial sector, and now I focus on making money through investing in stock trading.