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5 Reasons Why You Should Pick up Your Crying Baby

Preparing and Teaching Financial Independence to Kids

Globe with money

     Start Preparing Your Child Early in Life 
The best time to start preparing your children for financial independence is before they are even born or shortly thereafter. Kids are expensive; and, many people find it difficult to save anything after they're born. From diapers and formula to braces or glasses and on to sports gear and education costs, the disappearing money adds up.

Ideally, you have at least a few years of employment under your belt before you start having babies. During those working years, it's not a bad idea to start your own savings account and to look into investing from time to time in some low cost stocks for yourself and your future children. What a wonderful "welcome to the world" gift an index fund would make. If your children are already here, after paying off your credit cards or bills, you might consider splitting the rest of your income tax return up between your savings and stocks.

However, before you invest in the stock market, it's important to learn as much as you can about it and about the stocks you plan to purchase and the fees associated with maintaining a portfolio. The more you learn will not only help you make potentially more profitable decisions but it will also prepare you to better teach your children about stocks somewhere down the road.

Spending Less to Save More

During the first part of your child's life, they won't care if their shoes are Nike's or Walmart specials. In fact, you could buy their clothes at the Goodwill store and they'll never know the difference. Take a trip to Finish Line and price their baby shoes and then head over to Walmart to see how much money you will save if you buy the shoes there instead. When Christmas rolls around, instead of spending a thousand dollars on twelve items your child might play with twice, take half of that money and save it or invest it. You'll still be able to get twelve less expensive items or purchase tickets to events your child would enjoy, and,  most likely, the child will still be as happy as can be and the memories will last a lifetime. If you take these savings and you invest them in some stocks, when your child turns twenty one, there's a chance you'll have a nice retirement fund and he or she will have a really nice down payment for a house. If you buy the more expensive items, eventually, what you'll have is what you'll refer to as a nice "pile of junk" taking up space in your basement, garage, or storage room.

Demonstrate a Strong Work Ethic

Another way to lead your child into financial success is to demonstrate and talk to your child about how ambition, focus, drive, and hard work leads you from one place financially to a better place. Many children internalize the attitude their parents take about their own work responsibility. Children, who witness a parent's dedication to getting to work every day, working hard, and helping others, tend to emulate those qualities when they enter the workforce. When children set small goals and devote their time and energy into realizing their objective, good habits form and their confidence grows.

                                                         Major Purchases Made Easy

Teaching Restraint     

Most children start learning about money in elementary school. In fact, some states require financial literacy skills to be taught throughout elementary, middle, and high school. Parents can help further their children's understanding by asking the teacher what financial lessons will be taught throughout the year and expanding their child's lessons at home. For example, in the first years of school, children, usually, learn about coins. At home, parents could set up a pretend grocery or clothing store, give the child money, and put price tags on everything so they can practice. They could have their children put some in their bank to save for larger purchases.

If a parent finds out at the beginning of the school year what financial lessons will be taught they can expand on that at home in ways that teach how it pertains to the real world. Eventually, the kids will learn about saving and budgeting. Teach them from home by letting them see the money they earn for doing chores but not letting them have it right away. If there's something special they want to buy, have them figure out how long they need to save. The first time, keep their money until they have enough to buy the item even if it takes months. From then on, set one specific date such as the 10th of every month that you will pay them. Be sure to teach them the importance of paying their bills on time by paying them on time each month. This lesson will also teach them that money doesn't come easily; and, that they can wait and get what they want or if they decide not to wait they will have to do without or start all over.

Lottery Tickets vs. Stocks

Some people with few assets manage to pull together enough money to purchase lottery tickets. They choose to spend their money right away instead of saving it up to get something more likely to be profitable. However, most of those people never consider buying stocks instead. Educate yourself and your children to the odds of gaining income through stocks verses lottery tickets. Jim Cramer purchased stocks while living out of his car before those purchases helped get him into more suitable living conditions. He mentions his experience in the attached video.

People throw billions of dollars into the lottery each year where the odds of breaking even are slim to none. According to ChicagoMag, in the 60619 zip code of Chicago, Illinois which consists of only 6 miles of land, people spent 26.8 million dollars on lottery tickets in the fiscal year 2011. If most of those people would have saved their lottery money for six months to a year and then invested it in stocks, the chances of them coming out ahead would increase tremendously.

CNBC's Jim Cramer Advises Young People to Invest


Mad Money host Jim Cramer gives advice young investors should consider when it comes to their money.

Teaching Your Child to Invest in Stocks

If you haven't taught your child about stocks by the time they reach middle school, it's a good time to start. By this time, you should have learned plenty about the stock market. Your child's interest in learning about money and stocks peaks at this stage of their life. Take him or her with you the next time you go see your broker. You might want to keep the stocks you bought him or her under your hat so it doesn't spoil their enjoyment of building their own much smaller investments. Instead, you could show them what you put into your retirement fund and where it's at. You could let your child choose a few stocks in a company they're familiar with and teach them how to watch what it's doing. If it's not doing good, you should have only invested money you didn't need so don't let it stress you or your child out. The trick is to buy your stocks with money you would have otherwise blown on something frivolous or not needed and limit what you put into small amounts over time so you don't feel like you sacrificed much.

When your child enters high school and they start working, you could buy them a used car and pay for their insurance so they don't become overwhelmed with the responsibility of money. However, you may want to have them buy their own soap and deodorant, as well as, whatever video games or cell phones they want. By approaching their financial independence in this way, they are less likely to become accustomed to missing payments and borrowing money. You also may want to talk to your child about waiting to get married and have children until after they've finished college or traveled.                                             

Teach Responsible Credit Habits
How a Credit Card Can Help Your Child's Financial Future

When your child turns eighteen, a talk about the pros and cons of credit cards will help prevent them from being blindsided in their future. After you explain the importance of a credit rating and how that affects interest rate, you might encourage your child to apply for a few credit cards. Some companies such as Discover start them with a 700 credit score and they offer student credit cards that have low or no interest rates for the introductory period. If you encourage your child to only use them to purchase necessary items such as gas, and car maintenance or repairs, they will learn from the start effective ways to use them for their full advantages and how to avoid the burdens that can come with misuse.

With the growing concerns of identity theft, you may want to advise them to get their free credit reports. They can get one free credit report per year from each reporting agency by going to www.annualcreditreport.com. That means every three months they could have free access to one report from one of the following three major credit bureaus: Transunion, Equifax, and Experian. Ramp up their enthusiasm of watching their credit score increase. In addition, you should go over their first few bills with them and teach them what to look for such as: being charged twice for one purchase; or having charges for purchases not made; or changes to personal information.

When children learn how to use credit properly through the watchful eye and teachings of their parents, they learn to make better choices and they form a habit of keeping their balances low and making payments on time. Let him or her know that if something unexpected happens and they find themselves in a jam to come to you for help. If that should happen, you can talk about cashing in one of their stocks to pay the bill. When your child reaches twenty-one, they will be able to purchase a new car with a very low interest rate.

Car Dealer shaking hand of young car owner
                                    Source: JP Chevy

The Outcome for Parent and Child

Whether your child worked while attending community college or went off to a university and found a job there, he or she has learned how to make responsible decisions when it comes to how to use their paycheck and their credit cards. In addition, they have the security of the Index Fund to cash in on to help them purchase a home. With these hurdles behind them, they can travel until they graduate and start thinking about getting married and having children if that's what they choose to do. And, while they are busy doing all of that, you can sell your empty nest, buy a condo on the beach, and the best part is you won't have so many things to pack up and get rid of.