Are you teaching your kids about money? Mastery over personal finance is necessary for a secure future. Money isn’t everything, but life is way easier if your finance is under control. Unfortunately, most American workers are struggling with their finances. 75% of all employees are living paycheck to paycheck. That’s a huge percentage! How can that be if the economy is doing so well? If you can’t control your personal finance now, what will you do when the economy turns south. I feel very fortunate to be in the minority here. We live a moderate lifestyle and we don’t have to worry about money these days.
We haven’t always been comfortable. I’ve been poor before and I know it’s a very stressful way to live. My parents immigrated to the US when I was 12. They worked minimum wage jobs for years (and some below minimum wage jobs). Our finances improved when they acquired a small restaurant, but they still couldn’t save much. When I got into college, my parents had to show that they had money to pay the tuition. My dad wrote a big check to himself and deposited it. This gave their checking account a temporary boost and he got a balance letter to show the university. A few days later, the check bounced and he had to pay the overdraft fee, but the check accomplished its purpose. Afterward, they worked hard to help pay tuition and I picked up various campus jobs to help out as much as I could. It was a very stressful time in my life. Once I finished college, I landed a job as an engineer and my money troubles were behind me. I never spent more than I made and started investing right away. Life is a lot happier when you don’t have to stress about money.
Teaching kids about money
This is why I’m teaching my son about personal finance. If he starts young, he’ll have a big advantage over his peers. I’m afraid America’s personal finance troubles will only get worse. There is always more stuff to spend money on and employee compensation isn’t keeping up. I’m pretty sure the percentage of people living paycheck to paycheck will keep growing.
Being a stay-at-home dad is a big advantage in this case. I spend a lot of time with my son and we talk about money pretty often. He’s just 9 years old, but he already knows a lot.
- Being frugal – Like us, RB40Jr is naturally frugal. He rarely wants to spend money on anything. Occasionally, he’d want to a Nerf gun or some other toy and will save up for it. I’d match him to help out. He probably picks up the frugal habit from living with us.
- Saving – Often, he gets cash for his birthday and other special occasions. He puts them in his cash box right away and he loves counting his money.
- Interest – I taught him how interest works and he gets it. He argued that $5 per year is too little for putting his $500 in the bank. He’d rather keep it at home so he can enjoy counting it. He’s got a point. The interest rate is so low; a saving account isn’t worth it anymore.
- Investing – Fortunately, there are other ways to save now. Many brokerages dropped their trading fees to zero last year. I opened a UTMA account at Fidelity for him and deposited his money there. The stock market was amazing in 2019 and he got to see it in action.
- Hustling – It’s great that he saves his gift money, but that’s not enough. He needs to learn the value of work, too. Work = income. Last year, I signed up with Lime to charge scooters as a side income. I bring him with me to collect scooters, charge them overnight, and drop them off in the morning. It’s a great side gig when the weather is nice. We got some exercise, made some money, and RB40Jr learned that work is not much fun. I split the pay with him 50/50.
- Real estate investing – I taught him how rentals work. Our tenant pays us rent every month and we pay the mortgage and property tax. I also try to take him with me when I do repairs at the rentals.
He might not understand everything I’m trying to teach him, but I think he’s way ahead of most kids his age. He said his friends spend their gift money right away. I’m quite proud of his frugal ways.
More money lessons
Later on, I’ll teach him more money lessons. If we don’t teach him, who will? That’s why I think America’s personal finance issue will keep worsening. If 75% of workers can’t handle their finances, I don’t see how their kids can improve. Most young people will have to figure it out by themselves. Anyway, here are more lessons I hope to teach my son before he heads off to college.
- Track your income and expenses – Track your net worth, income, and expenses for free at Personal Capital.
- Individual stocks – Right now, all his money is in an index fund. I’ll teach him about dividend stocks later.
- Alternative investment – This will have to wait until way later. I like REIT and real estate crowdfunding. It might be a tough concept for him to understand.
- Credit cards – Never carry a balance.
- Career… – Mainly, I want to teach him that many careers don’t last. Most engineers can’t keep working on technical stuff forever. They need to move on to something else.
- Taxes – Ugh!
- Taking care of his parents – I’m sending my parents some money every month to help out with their living expenses. They worked hard when they were young, but couldn’t save much. Now, it’s time for us to give back. Hopefully, we won’t need help from our son when we’re old, but you never know.
- What else?
We still have 9 more years to get this right. Wow, time really flies. We’re 50% done!
Helping out more
Money lessons are good, but we’d like to help out more if we could. My parents helped pay for college and I didn’t have to get a student loan. I worked too but didn’t make nearly enough to pay the whole bill. Thanks to them, I started out at zero and not negative net worth like many new grads today. Mrs. RB40’s parents didn’t have much college savings either. She wanted to go to a better college, but her parents only made enough to help pay in-state tuition. Her choices were limited. I guess I lucked out there. I’d never have met her if she had gone to a private university.
Education is one of our core values so we really want our son to go to college. That’s why we’re saving up a college fund for him.
We started a 529 college savings account in 2011 and contributed extra in the early years. It is working out really well. His college fund is in a good shape and it still has 9 more years to grow. We’ll probably contribute around $5,000/year from now until he starts college in 2029.
I think the 529 account is a great idea. Some people don’t like it because of the restrictions, but I don’t mind at all. If our son gets a scholarship, we could change the beneficiary to our nephews and nieces. Education is extremely important to us and the more college funds we have, the better.
Now, a peek into RB40Jr’s UTMA account. This is where I deposited his gifts and side hustle money. I’ll manage the UTMA account until he turns 18. At that point, he can take over and handle his own money.
This account is at Fidelity and everything is invested in an index fund. We hustled in autumn and made some money by charging scooters. However, winter is tough for that side gig. We haven’t made any money and we’ll need to find a better winter side gig.
Our son also has a Roth IRA account. He’s a model, actor, and photographer for our site. I pay him a few dollars every time he helps out.
This isn’t a lot of money, but it will compound nicely. If he keeps contributing, he’ll have over $1,000,000 in his Roth IRA before he turns 50. Or maybe 40, who knows? The important thing is that he’s starting very early. Time is on your side if you start investing young.
RB40Jr’s net worth = $94,966!
Adding all 3 accounts up, RB40Jr is worth $95,966. Wow, that’s a lot of money. If all goes well, he’ll break six figures in 2020. This means he’s worth more than 50% of all Americans. That’s mind-boggling. Kids with financially savvy parents have a big advantage over their peers.
However, he has a huge expense coming up in 9 years. That’s a college education. After 4 years at the university, he’d probably deplete his college savings and he’ll have to start over on his own. If we’re lucky, he’ll get some financial help and there might be some money left over. Stay tuned and see how it works out.
Are you teaching your kids about personal finance? Do you have any plans for college expenses?
*Sign up for a free account at Personal Capital to help manage your net worth and investment accounts. I wonder if I could signup for RB40Jr. It’ll make tracking his net worth even easier. I’ll see if a minor can work with them.
Source: Retire By 40
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