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Investing in the Next Generation

How many times have you looked back in life and wished you had invested sooner? Teaching your children a few simple lessons about saving and investing can help them not make the same mistakes you may have made. Let’s take a look at three steps you can take to get your children on the right path toward financial stability.

Step 1:  Teach Them How and Why to Save

Do you give your children anything they want? If you do, you may be providing them with a disservice. Teach them how to earn money to purchase something they want, or how to save money effectively in a savings account or other type of investment. Talk to your children to find out what it is that they want, and then work with them to set up goals for saving money to achieve these goals.

Discuss the many different options they have when it comes to saving money for something they want. For example, if your daughter would like to purchase a favorite toy at the store, you can help her set up parameters that will help her earn enough money for that toy. Does she babysit or get an allowance for doing chores around the house? If so, how much of that money should be saved? How much can be spent? Should she use all of the money she obtains in one month to purchase the item, or should she save half each time she babysits and purchase the item in the near future? These are the types of options you can discuss with your children on a regular basis.

Step 2:  Teach Them How and Why to Invest

Once your children have a general understanding of how to save money and why it is important to do so, it is then time to talk with them about how to earn money through accumulating interest. Discuss how interest works and why it is important to start saving when they are young, continuing to add to that savings, in order to maximize each dollar saved.

This chart shows how much more money you can earn in eight years with an investment of $2,000 per year.

Once you have explained the importance of earning money, you should then provide them with different options for saving. Here are some of the basic ways to get children involved in saving their own money:

Open a basic savings account for them or with them.
As they earn more money, you may want to introduce them to other investment vehicles, such as money market accounts, certificates of deposit, and even mutual funds.  

Create a matching program with your children, much like a 401(k) program.
For example, every time they put in $20 to a savings account, you will match that with $20, and so forth. This will encourage them to save and to understand how certain investment accounts work as they consider options later in life.

Set up an education fund with them or for them.
To learn more about your options in this area, go to the Saving For Your Child's Education module.

Step 3:  Stay Involved

Once you have discussed these topics with your children, you must continue to check in with them and stay involved in the process. Most children look to their parents as the primary source of income, so the more you help them in their learning process, the better.

Don’t give in and just give them what they want; help them continue to understand how to earn their goals and provide ways for them to do so. Review their financial statements with them each month. Help them to understand how to read them and show them how much money they have earned on a monthly basis.

Most important, however, you must practice what you preach. You must continue to save and allow them to see how you are working through your finances. Let them look at your monthly budget and how you utilize funds and save money each month. Remember, their best and most important teacher is you.

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