Young people face immense financial challenges
August is the month when back-to-school sales seem to be everywhere and when the excitement of returning to school intensifies. I know the excitement and nervous energy in my household increases, as the first day of school approaches.
In the past year, I have joined the board of one of the private high schools in Grand Rapids. The challenges and opportunities facing high school students are immense. Personal financial knowledge, in some respects, is critical in preparing children for what they will confront in the future in their daily lives. With four teenagers about to enter high school in another year, personal financial acumen is becoming a priority so they can live, learn and work in the world in coming years.
Parents often struggle with how to instill certain concepts and values in their children. As they reach their teenage years, the challenges seem to get larger in this respect. In a world that is vastly different than the world I grew up in the 1960s and ’70s, the impact of outside forces often overwhelms anything that many of us are attempting to instill.
For many of us, mobile devices weren’t even on the radar in the 1970s. In years past, social media was a newspaper or a magazine. Computer technology in the 1970s was so different. Personal computers were just coming out and were expensive, large and not very robust in their computing power when compared to the devices we have today.
Parenting likely was a challenge for the parents during the baby boom generation when I grew up, but it seems we have more things to contend with in 2016. Snapchat, Facebook and Instagram were not available back then. Communication was in person or on the telephone and not by a text message. Saving was a virtue, and the use of credit cards and consumer debt was very tempered and, in many cases, rarely used. Times definitely have changed in many ways.
Herein lies the challenge. How does one transfer life virtues and lessons to the youth and young adults of today? This includes personal finance and how to create and maintain solid financial habits.
In a world of incredible federal budget deficits, large amounts of consumer debt and an instant gratification environment, it is often difficult to have those instructive and constructive discussions with teenagers on the necessity to save and not try to acquire or obtain an item just because someone else does. Financial discipline is tough to maintain with all the outside influences our children face day-in and day-out.
We all have seen some of the statistics that indicate average credit card debt of college students is growing and typically is several thousand dollars when a student graduates. In addition, if the college student has taken advantage of college loans for funding their education, their student loan debt at graduation often can exceed $20,000. And, some of these students also may have an automobile loan to add to the list. So, many of these students enter the full-time job market with significant debt and the likelihood the obligations may grow if they use credit to make additional purchases. There may be some opportunities for parents to help stem this tide.
One of the vehicles at our disposal is leading by example for our tweens and teenagers. Children do observe what we do even if we don’t think they are paying attention to what we do and say. Some common situations in our lives may provide some of those “life lesson” opportunities we can share with our children.
Most of us have employment retirement benefits that may provide for an employer match for our own employee contributions to a retirement plan. The employer match is an instant return on the investment. Having some candid conversation about saving for the future can be done by looking at what we are all doing with our retirement savings. The hope is that we are setting the stage, so we won’t need to be financially dependent on our children. Such a burden will be large, considering we likely will be leaving them large federal deficits and social security and other entitlement obligations.
Bank savings is another opportunity for discussion. When is the last time you actually took your tween or teenager into the bank (and not the drive-thru) and made a deposit? I know many of us have direct deposit, and we rarely stop at a bank other than to use the ATM. A visit to a bank branch for a deposit may be a bit more visual and impactful to our kids. Creating a habit of saving starts early. Perhaps a way to create some incentive for our teenagers is taking a page from the employer 401(k) match concept. This may include offering a parent match for tweens and teenagers as an incentive to save and create some good personal financial habits.
If one’s teenager has begun their working career, and they are part time, one could consider setting up a Roth IRA retirement account as a way to start not only a savings program but a retirement program at the same time. Once again, a parent match or parent funding may help them along the way in building good personal financial management habits. Funding (and investing within) a retirement account has some specific considerations that a professional adviser should be consulted about along the way.
Our credit card habits and having a frank discussion on how to use or not use credit cards also is an area to lead by example. Payment of any outstanding balances in full on a monthly basis is a best practice that should be promoted by parents. Additionally, how and when one uses credit cards is another conversation to have with teenagers. In some circumstances, advocating the use of debit cards over credit cards may assist in promoting both appropriate savings and spending habits.
I am not aware of a mobile app that does all of the parenting. The back-to-school environment allows all of us the opportunity to pass on some of that great advice and the strong financial habits our grandparents and parents instilled in us. Let’s make sure we pass on that legacy.
Bill Roth is a tax partner with the local office of international accounting firm BDO USA LLP. The views expressed above are the author’s and not necessarily those of BDO.