Pay It Forward – Improving Financial Education For Our Youth

BLOGS|16 Feb 2023 |BY: Michael Cochran

SCROLL FOR MORE

In recent decades, our economy has dramatically changed and advanced. Many of these changes have been made through creating efficiencies, where individuals and companies can do more with less time, effort, and manpower. An area where this is very evident is in how individuals manage their finances. In the not too distant past, more people used cash to pay for goods, wrote checks for certain items, or used a credit card somewhat infrequently (the imprint of the raised credit card numbers and carbon copy slips are all but gone!). With technology, you can now pay for goods by hovering your iPhone near a payment reader, your credit card information is saved on your computer for online purchases, and there are a variety of payment services to instantly transfer funds electronically (e.g., Venmo, Zelle). All of these advancements are great and improve efficiency, but they do take away from our youth truly understanding the importance of basic actions that we now take for granted. In the past if you balanced a check book, you would have a good idea of the balance in the account. If you budgeted a specific amount each month for groceries or other items, and set aside cash for that, you again would know how much was remaining. Over the years many clients, including parents, grandparents, aunts, uncles, or simply a caring adult, have asked us for advice on what is the best way to go about starting this conversation with youth today to help improve financial literacy. While we have recommendations on several terrific books or programs that we would be happy to pass along, we also wanted to pass along several higher level ideas that advisors here in our office have utilized with their own children/grandchildren.

There are many different methods, strategies, and curriculums to help provide a groundwork for our youth to better understand finances and become financially literate. One strategy that an advisor in our office has utilized with his children is based on the Spend, Save, Give method. This framework is easy for them to grasp and teaches the importance of budgeting funds they might earn from chores or gifts they receive. Across the three categories, you can set a simple percentage to allocate an amount to. An example of a breakdown is as follows: Spend – 50%, Save – 25%, Give – 25%. Percentages close to these might help instill certain habits and values as children mature that might prove extremely helpful to them in the future. For example, if a teenager understands the power of saving a set percentage each month, they may continue to do this through adulthood and be in a great position financially when planning for retirement.

Spend

Kids always get excited about that special treat, a specific toy, a video game, or some experience (e.g., tickets to a game, concert, or event). If you decide that these items are “outside” of the normal items you might regularly spend money on, then you could set the expectation that they would have to pay for this item. Very few kids will fully grasp this right out of the gate, and it will create a learning experience for them to eventually understand budgeting. For example, if they spend the bulk of what they have saved early in the month before additional allowance or income is received, there will not be any left for those expenses later in the month.

Save

Again, this is an excellent habit to form at a younger age. This could apply to saving for something longer term, or a set goal that could be sooner. Opening a savings account, physically taking them to the bank, and reviewing the growing balance is a wonderful lesson for them. If they might have a future expense that you want them to help contribute to, this again would be great for them to put some skin into the game. A recent example was of two boys in Boy Scouts that had an international trip with their troop that would be the experience of a lifetime, and something they did not want to miss. As you might expect the planning took over a year but gave them ample time to work, saving half of the cost of the trip.

Another interesting exercise on saving is matching a portion of what they are saving. If possible, this might be dollar-for-dollar match up to a certain amount into a savings account. Something else to consider is exploring a Roth IRA for a teenager that has a part-time or summer job. This would be a fantastic opportunity to explain different account types, what they are for, and the benefits they could receive long-term from them. Since their earnings might be limited given the hours they can work, a “match” would fall under the annual gift amount and the Roth IRA contribution limits ($6,500 in 2023). There are many excellent tools online to graphically illustrate the power of saving with tax free growth, compound interest, and the benefits of starting at an early age.

Give

If being charitably inclined is a value you want to instill in your youth, there is no better time to start this when they are young. This is also a wonderful way to teach and pass down values that you feel would be important for them in the future. It is taking the weekly budget amount and placing it in the offering plate on Sundays. Others might have heard of an organization they are attracted to or feel the need to support. All provide an opportunity to speak with kids on the importance of being charitable, while also teaching them how to go about doing so.

Another example falling under the “giving” framework came from a close friend. Each year a set of grandparents “gave” each grandchild $100, and the grandchild would then decide where they would like it to go. The grandchild was tasked with researching the receiving organization to be able to explain either verbally (when the child was younger), or in a written short essay (when they were old enough to write), why they chose the organization, what resonated with them, and how the funds might be utilized. This created a moment to teach them the importance of giving and forced them to be prepared to “present” and answer questions from an adult.

Touching on a basic budgeting framework is a great start, but our youth need resources and practical opportunities to obtain knowledge now to avoid detrimental pitfalls in the future. Additional topics might involve discussing the pros and cons of debt/lending, banking (both in the traditional sense, and new electronic platforms/services), the power of investing, and walking through future goals they might not be aware of. These topics fall more in-line with financial education, and we will cover some of those topics in a follow-up blog.

We believe it is extremely important to talk about these kinds of things with our (and your) kids because whether we like it or not, our youngest generations have grown up in a world where information is always available but is not always correct, age-appropriate, practical, or reasonable. Rather than letting them learn the hard way, or receive inaccurate information from a questionable source online, it is our collective responsibility to help share our experiences and knowledge to set them up for future success.

If you have questions on any of the topics mentioned above, or another topic on financial literacy, please contact your advisor and they would be happy to assist. Also, if you would like additional resources to learn more, we would be more than happy to provide you with a list of recommendations.

IMPORTANT DISCLOSURE INFORMATION: Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by BentOak Capital [“BentOak”]), or any non-investment related services, will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. BentOak is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for personalized investment advice from BentOak. Please remember that it remains your responsibility to advise BentOak, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request at www.bentoakcapital.com/disclosure. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement. Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your accounts; and, (3) a description of each comparative benchmark/index is available upon request. Please Note: Limitations: Neither rankings and/or recognitions by unaffiliated rating services, publications, media, or other organizations, nor the achievement of any designation, certification, or license should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if BentOak is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers (see link as to participation criteria/methodology, to the extent applicable). Unless expressly indicated to the contrary, BentOak did not pay a fee to be included on any such ranking. No ranking or recognition should be construed as a current or past endorsement of BentOak by any of its clients.  ANY QUESTIONS: BentOak’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including the criteria used for any reflected ranking.

bentoak capital

Start Building Your Legacy

Connect with BentOak Capital today to begin shaping the future you deserve.

Get Started Today