3 important financial talks to have with your children before they leave home.
As a parent, there’s no greater pride than seeing your children grow up and make their way in the world. Of course, once they spread their wings to fly, you don’t want them circling right back to the nest to ask for money!
Want to help your children prepare for a financially healthy future? It’s important to take proactive steps to educate them on money basics before they leave the house. Here are three important discussions about the money you should have with your children to help them become financially savvy.
The importance of having a saving account
A savings account isn’t glamorous. In fact, it can be downright boring. But it’s an important part of the foundation of building a healthy financial future.
A savings account wears many hats. For one, it’s a place where your kids can start to accumulate funds for future investments such as real estate, stocks, or starting a business.
For another, it acts as a rainy day fund in case of an emergency. Car wrecked? Medical emergency? A savings account can help your kids handle unexpected expenses without having to hit you up for cash.
Finally, a savings account is a safe, convenient place to store money — far more secure than a piggy bank or under a mattress!
No matter where their lives may take them or what sorts of investments they might choose to make, a savings account will likely be the first step toward your children’s’ financial future. Helping your children understand this early will serve them well in life.
Understanding the stock market
While a savings account is great, the interest returns can be very small and slow-moving. Diversification — maintaining a variety of different investments — is one of the best ways to build wealth while maintaining a sense of financial security.
To help your children understand how to put their money to work effectively, it’s well worth helping them gain a good working understanding of different methods of investing. The stock market is a good place to start.
It’s important to note that there isn’t a single approach to the stock market. For some, long-term investing is a better choice. For others, a professionally managed stock portfolio might be most appealing. And others will prefer a more active approach to the market like day trading. There isn’t a right or wrong answer — each has its pros and cons.
What yields good results in the stock market?
What constitutes good results in the stock market? It’s relative and depends on personal style, risk tolerance, and overall goals.
For someone who’s risk averse, long-term investing in stable, blue-chip stocks might feel like the safest approach to the market.
But for someone with a higher risk tolerance and an interest in potentially benefiting from market volatility might gravitate toward day trading.
It’s a common misconception that day trading is only for the super rich, but that’s not actually the case. Penny stocks — stocks that trade for less than $5 per share — represent a niche that’s accessible to traders with small accounts.
Low-priced stocks move fast and can be risky. But for those who take the time to learn how penny stocks work, which patterns they follow, and educate themselves on the market could potentially learn how to benefit from the volatility.
Money matters, but it isn’t everything
“Money can’t buy happiness” … right? Well, it might be worth unpacking that adage with your kids before they leave home.
There’s a lot more to life than money — like spending time with family, traveling, and pursuing personal fulfillment through work and hobbies.
However, that’s not to say that money doesn’t matter.
While money can’t buy happiness, it can help provide the freedom to allow your kids to enjoy what really matters without debt or financial insecurity. That can lead to a more joyful existence.
Financial maturity matters
Money and finances might not be the most exciting topic to discuss with your kids, but it can help them build a more financially stable future.
By educating your children on some money basics now, you can help them invest in their future. It’s all about helping them become self-sufficient, savvy about savings, and better prepared to work toward financial freedom. Who doesn’t want that for their children?