Kids and Money . . . It’s Up to You & Me

When it comes to raising kids, it seems that parents either look forward to the teen years . . . or dread them. Trust me, Jill and I are no exception. Having three young ladies in the house all at once has its moments, but we wouldn’t trade it for the world. Maeve, Phoebe and Sophie, despite the occasional teen drama, make me so proud every day and I love watching them grow up into kind, smart and successful adults. No, it hasn’t always been easy, but Jill and I knew early on that we’re committed to helping them become successful contributors to society. 

Just what does that even mean? Well, for us it means showing them the ropes when it comes to adulthood. Things like getting up on time, taking care of their health and hygiene, teaching faith in God, demonstrating empathy towards others, embracing education, and especially, how to manage money. The teen years are a crucial time to start kids about money—how to earn it, save it and spend it wisely.

Why is it so important for parents to teach their kids financial literacy? Well, sadly it’s because they need it, badly. In fact, a 2022 study by Fidelity discovered that roughly 72% of the teens say they have “no knowledge about trading stocks and ETFs.” And almost half the 13- to 17-year-olds surveyed said that investing “feels out of reach” for them, with only one in five reported that they have started investing.

And with only eleven states in the U.S. requiring financial literacy as a high school graduation requirement, educating teens on investing and finances needs to happen at home. While seven out of ten teens told Fidelity they look up to family members as financial role models, only 34% reported regularly discussing the topic with their parents₁. 

According to John Boroff, vice president of youth investing at Fidelity, “According to the study, teens’ understanding of basic financial principles are at alarmingly low rates, with more than half saying investing is too confusing. We know financial education in the United States is a concern for many, so perhaps there’s no surprise teens find investing confusing.”

Another concerning finding was that teen girls were less likely than boys to say they have talked to their folks about investing, with female respondents also more likely to say they have no knowledge of researching investments. Interestingly enough, though, was that girls were more likely (60%) to know that teens can trade stocks, compared to 55% of boys. 

Folks, this is a real problem. Kids with no real knowledge about how to manage their finances can easily turn into financially irresponsible adults who struggle to stick to a budget, pay their bills and prepare for a successful retirement. Financial habits should be learned and implemented as early as possible to help ensure they stick for a lifetime. 

Think of your teen as an adult in training. As the adult of the house, it’s your job to teach them what they need to know for that moment you send them off to college, trade school or even their own apartment. Don’t worry, you don’t have to be a finance professor to teach your teen how to save money. You can show them by example. As I like to say, more is caught then taught. You want to show them how to earn money, create a budget that works for them and how to give, save and spend wisely. 

Show them how easy it is to be parted from their money by giving them an awareness of where they are spending their money, perhaps foolishly. Think clothes that go out of style quickly, expensive cosmetics, phone and apps, video games, concert tickets – and in particular, just how expensive online shopping can be. After all, when you push a button to buy something without seeing the physical money leave your wallet or purse, it’s easy to overspend.

Here are a few more tips to help set teens on the right financial path; You can start by helping them create a budget, one which outlines how much money they have coming in each month, how much and where they would like to spend, save or give – and how to stick to it if unplanned expenses arise. You could have them start with a relatively small savings goal, for example, to demonstrate how even a small sum of money compounds over time. 

Teach them about debt and its consequences. Help them understand the costs of borrowing money, including the effects of interest on the total repayment amount. They should also be aware of how borrowing money and repaying it will affect their credit score and why this is so important to manage as they age and need good credit to buy a home, a new car, and more. And in some instances, they may need to exercise delayed gratification. What they might think they absolutely must have right now may be less appealing in 2 weeks if they use that time as a “cooling off” period to think about the purchase.

Another easy step? Help them set up bank and potentially credit accounts so they can see their money, their actual spending, and hopefully the growth of their money too. Talk to them about investing basics. For example, help them understand how common vehicles like stocks, bonds, mutual funds, ETFs, and even retirement plans work. Show them how just a little money socked away each month now can turn into a really big sum down the line.  

And in case you’re not sure how important these conversations might be, the Fidelity study revealed that teens that talk to their parents about investing are more than twice as likely to feel confident about finances₃. What a great gift to bestow upon your child! My daughters might not see it as such right now, as evidenced by the regular sighs and eyerolls, but we’re in this for the long game.

So as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS, offers investment advisory services through Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield. Jeff can be reached at jeff@cutterfinancialgroup.com. 

Insurance products, including annuities, are offered through Cutterinsure, Inc., (MA insurance license #2080572). Cutter Financial Group and Cutterinsure are affiliated and under common control but offer services separately. Members of Cutter Financial Group’s management receive revenue directly from Cutterinsure. Any compensation received is separate from and does not offset regular advisory fees. Cutter Financial Group does not charge advisory fees on any insurance products. We do not offer tax or legal advice. Always consult with qualified tax/legal professionals regarding your own situation. Investing in securities involves risk, including possible loss of principal. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. This article is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Market data and other cited or linked-to content in this article is based on generally available information and is believed to be reliable. Please contact us to request a free copy of Cutter Financials’ Form CRS, Form ADV 2A and applicable Form ADV 2Bs. 1. https://tinyurl.com/2p9b2wzt 2. Ibid 3. ibid