Passing Along Good Financial Habits
by Scott Boatwright
If you’re in your fifties, sixties, or seventies, there’s a good chance you can recall a really lousy financial decision at some point in your past. If you’re lucky, it was buying a wildly overpriced article of clothing that you wore once before realizing that your friends were snickering behind your back.
More likely, it was more on the scale of buying a quite fun, but needlessly expensive, car in your twenties, when you could have been contributing to a retirement plan instead. There’s a high likelihood that your personal lousy decision came before you turned fifty.
In fact, even if you don’t consider yourself a money maven, you almost certainly have acquired some well-earned financial wisdom from which the younger generation could benefit mightily. Here are some concrete examples of what you can do to educate kids, grandkids, friends or mentees about the way money has worked in your life—both good and bad.
Incentivize a young person who works.
Is there a teenager in your circle who makes $1,000 per year babysitting or cutting grass? Or a young adult who has overcome some odds to get a first real job, even though it doesn’t pay great? Is that behavior that you want to incentivize?
Then consider jump-starting the ability to save by matching some portion of that young person’s earnings, with the understanding that your contribution is for long-term goals only. For the teen, consider opening a Roth IRA and matching, say, 50% of their earnings with contributions that you make to the account.
For the young adult, encourage him or her to defer at least enough earnings into an employer’s retirement plan to max out the employer match; your gift replaces those deferred wages for current living expenses.
Take advantage of the opportunity to explain why you’re doing this: Because you admire their work ethic and want to help them develop the savings habit as soon as possible, and because money they put away early in life has the longest investment horizon—more time for compound returns to work their magic.
Take a young person to a meeting about finances.
Many of us aren’t great at talking about finances within our own families. Ironically, we can talk about how money should be allocated in other environments all day long. Here’s an idea to bridge that gap.
Take a young person to a meeting that will decide how limited dollars will be deployed to meet important goals.
Reassure a young person that nobody out there is living a perfect life without money stress. Encourage them to seek help before they are overwhelmed, and tell them where you have found support.
The setting of the meeting doesn’t really matter that much: work, church, synagogue, and other non-profits all work fine. Your goal is to expose a young person to smart people following an intelligent process to decide how money will be spent.
After the meeting, take some time to emphasize that there’s usually no perfect allocation of money. It’s having a process to work out competing priorities that’s really important.
Show a young person how your budget works.
Spend half an hour talking a young person through your personal budget. Hits the basics: Here are my income sources and here are my expenses. Talk about budgeting for known expenses and for the surprises that inevitably come up.
Explain how to budget for expenses that occur annually rather than monthly. Slip in some of the best financial advice I’ve ever received: Set your budget up based on what you were making before your most recent raise if you possibly can.
Teaching a budgeting process is great in and of itself. But the most important knowledge you can impart with this exercise is how to make your standard of living conform to the funds that are available. Talk about sacrifices that you’ve had to make to live within your budget.
Talk with a young person about work/life balance.
Getting work/life balance right is hard. Really hard. And our society doesn’t provide great opportunities for talking about the issue, either. Think about times when you got work/life balance right, or really wrong, and open up to a young person about that.
Few of us sail through our working years with work and life nicely balanced. Maybe you had a work opportunity that required you to work really, really hard for two years, but that put you in a higher-earnings situation for the rest of your career. Talk about what that meant for your family and how you made it work with your partner.
Almost all of us can point to a co-worker that we love but who is married to his job in a way that has harmed him personally. Tell that story as well.
Has there been a period during your working years when you and your partner had to decide whose career would take precedence? In today’s world, most couples will be dual-earners by necessity. Young people need to know how an older generation has worked through this particular sticky wicket.
Perhaps most important, reassure a young person that nobody out there is living a perfect life without money stress. Encourage them to seek help before they are overwhelmed, and tell them where you have found support. If they plan to have kids, let them know that there are many models of child-rearing that can be adapted for their personal financial situation.
Scott Boatwright, J.D., CFP® is a financial planner at Starks Financial Group (440 Montford Ave., Asheville, NC 28801 / 828-285-8777). Starks Financial Group is not a registered broker/dealer, nor is it affiliated with Raymond James Financial Services. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment Advisory services offered through Raymond James Financial Services Advisors, Inc. This article expresses the opinions of Scott Boatwright and not necessarily those of RJFS or Raymond James. Raymond James does not provide legal services.