Kids typically tune out when their parents fire off the clichés about money — “A penny saved is a penny earned” or “Money doesn’t grow on trees” — but they’d be wise to tune in to the financial advice their parents can give them before they enter adulthood.
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A report by the Brookings Economic Studies program indicates teenagers and young adults are woefully unprepared to deal with personal finances.
“The lack of basic financial knowledge and skills among youth today is of national concern,” the report states. “American high school students routinely fail tests that evaluate their financial knowledge and are ill-prepared to face important decisions about borrowing, saving, investing and planning for their financial futures.”
So just what are some of the financial tips that tend to serve the next generation well — the ones we want our children to heed?
Cash Is King
Keeping the credit cards tucked away and turning to cash is the best money advice that Lauren Tingley, who runs the website Simply Well Balanced, said she received.
“Growing up my parents always paid cash for everything they bought. This included clothes, vacations and cars. As a child and young adult they always encouraged me to do the same and to only use credit in an emergency. This advice has served me well into adulthood as my husband and I currently live debt-free, allowing us to save for early retirement and have the peace of mind that we have money saved in case of an emergency.”
Live Below Your Means
Spending to keep up with the Joneses can be a recipe for financial and personal disaster.
Christopher Fred, the managing director and head of proprietary cards and loyalty at Citi, is the parent of three and has made it a mission to give them the tools to effectively manage their money over their lifetimes.
“My advice to them is simple: Spend less than what you earn,” Fred said. “It doesn’t matter how much or little you make. Ensuring you craft a lifestyle that aligns with your means has a significant impact on your quality of life. And in the moments in our lives where we have a choice in how we spend our money, make those moments count.”
Create an Emergency Fund
It’s inevitable. Emergencies will happen, and we should prepare, said Leo Young, founder of Optimized Family.
“My parents advised me to save money aside in a separate bank account when I first started working and earning a wage. This wasn’t about putting money aside for the future; it was about putting money aside in case of an emergency,” he said. “This is the best advice I’ve ever received. When I had plumbing problems and a costly leak in the house, I could use the money I had saved to pay the plumbing bill without having to dig a hole for myself.”
Save Part of Each Paycheck
This is a separate pot from the emergency fund and should be kept in an alternate savings account.
“Without a doubt, the best financial advice my parents ever gave me was to save 10% of every paycheck. When I got my first job at 16 years old, my parents made me put 10% of my earnings directly into a Vanguard account they had set up for me,” said John Ross, the president and CEO of Test Prep Insight.
“At the time, I hated it. I wanted that money to buy new baseball gear and do fun stuff with my friends. But despite my initial protest, I’ve maintained that practice into adulthood, and it has served me incredibly well. Every payday, I auto-deposit 10% of my earnings into the very same Vanguard account I’ve had since I was a kid and am glad to do so. And that’s because that account is now massive. I never would have thought such a simple hack could have such a major effect, but it really works. Time and consistency have significant power.”
Follow Their Financial Example
“My parents never give me direct advice about money. I did not ask for it either,” said Alcides Otiniano, the founder of the Prosperous Frugal website. “But I saw indirectly how finances were handled at home. We took a modest style of living way below our means. And we paid attention to not spend more than really needed.”
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Last updated: July 22, 2021
This article originally appeared on GOBankingRates.com: ‘Spend Less Than You Earn’ and More Money Lessons Experts Learned From Their Parents