How to Save Your Children from Financial Mistakes

January 11, 2022

Pressure from social media and society can cause children to make poor financial decisions. Today we are discussing what you can do to save your children from financial mistakes.

Children will inevitably make mistakes in life. Here is how to save your children from the financial ones.

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Show Notes:

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SPEAKERS

Anthony Saffer & Alex Okugawa

Alex Okugawa 0:00
Pressure from social media and society can cause your child to make poor financial decisions. Today, we’re talking about what you can do to save your child from financial mistakes.

Teaching money habits at an early age is a critical issue. I mean, study after study has shown, the earlier you teach children about these good money habits, the better they’re going to be prepared for the future. So I’d like to ask you a couple of questions, which you’ve already answered through money geek. So we’ll post a link to that as well. But I mean, how old should kids be when you start teaching them about money? Because I know a lot of parents are like, well, when do I start? You know, is it when they’re one? Or is it when they’re 15?

Anthony Saffer 0:45
Yeah, around age two, I mean when they’re old enough to grasp this idea that, number one, if I work, I can get a reward. So small chores around the house where there’s a reward, that can be helpful. And if they can work to put money into a piggy bank, you can buy those online, where it has a “give, save, and spend” divider. And because children don’t understand, innately the value of money. In terms of a $1 can only be used in one place. So if they can understand the difference in priorities between giving, saving, and spending, which are three uses of money, then they can begin to grasp at as early as age two.

Alex Okugawa 1:25
And there’s a lot of different ways that you can teach your child about money. There’s so many different subjects, which I know parents feel like they may get overwhelmed, like, where do I start, but I love what you’ve said here, talking about compound interest. And you know, in some ways, you can show them the good ways that compound interest can help you and the bad ways, right? Because they say compound interest is the eighth wonder of the world. So can you just talk a little bit about that? How can you teach kids about compound interest because it can be a complex subject,

Anthony Saffer 1:53
I wrote a blog post a couple years ago for Alpha Architect, and we talked about basically the research that goes into it, where eight year olds can start to pick up on the difference of the compounding reward that comes with with savings right around that age, doesn’t mean you have to necessarily target just that age. But this idea that, hey, if there’s a penalty for debt, or a reward for saving, they can start to grasp the magnitude of that compound interest one way or the other.

Alex Okugawa 2:24
There’s one story that I love that you always tell about your youngest son with a video game, can you give us a little bit of insight on that story? Because that’s, that’s a great story about negative compound interest and how this can hurt you.

Anthony Saffer 2:35
So we want to save our children from financial mistakes, but we want them to learn those mistakes while they’re young. So yeah, the story goes with with Henry when he was aged nine, he asked me to buy a video game. I said, Okay, do you got the money for it? No. So I got this this master plan. I let him borrow the $20 that it cost to buy it. But I laid out a plan and said, you know, for every week that you don’t pay it back, there’s $1 of interest that’s charged. And it took him a while to do that. And he got further behind and felt the burden with it.

Alex Okugawa 3:05
Great to learn those lessons now, when the stakes aren’t so high, and mom and dad can help you out rather than when you’re full adult going. Oh, man, my credit card is racking up here. Okay, so final question here. Which, you know, if you’re a parent and you want to get your child involved, that’s one thing, but how can you have children be encouraged to save money?

Anthony Saffer 3:25
Keep it simple. Okay, a lot of times parents think, well, we need to come up with these elaborate financial lessons, just use everyday type thing. So kids will ask for, for stuff, right? Whether it’s a game, a toy, to go somewhere, whatever it may be. And you don’t necessarily need to do this all the time, but let’s say they have a toy that they want. Encourage them to save for it. You can provide almost like a match if you want to. So it’s almost like a 401k where they’re putting money in, you’re matching dollar for dollar up to get to that amount that that they want. But here’s the thing, when it comes to saving for children, they need to see the reward relatively quickly, depending on how old they are. If it’s like, well, I gotta save for two years to get this toy that I want, they’re going to lose interest. They don’t see the immediacy of it and it’s not going to pay dividends from there.

Alex Okugawa 4:12
And I think that’s a great you know, option I remember growing up matching was a really common thing in my household especially for like larger items that to your point, it would have taken me way too long to save for it on my own but the matching helped me get some skin in the game but also help my parents get involved helped me make the decision talk about the big purchase, why are we doing this? Stuff like that.

Anthony Saffer 4:32
When it comes to savings, you don’t want to encourage your kids to only save and never spend, they do need to see because we want to avoid that hoarding mentality. They need to be able to see that, I can spend money but to get what I want, or even what I need, I need to be able to save the money to get there.

Alex Okugawa 4:48
Awesome. Well, this is the kind of stuff that we love helping families with. We have an absolute passion for it. And it’s why we’ve developed a program called Money Smart Families. It’s a program designed to help equip, empower, and educate parents to teach their children smart money principles. If you’d like to learn more, you can visit our website or give us a call. We’d love to talk to you.

This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. See our website at onedegreeadvisors.com for full disclosures.