When you were 20 or 25, what was your level of financial literacy?
What did you think of when the nightly news mentioned Wall Street or the Federal
Reserve? Did you even care about those things at that time?
Few young adults fully understand how wealth can be built. That’s a shame.
Decades from now, many will wish they had started planning to amass wealth
earlier in life. How can you encourage your children to start that process?
Help them start before they turn 18. If your child is a minor, there are
still several ways she or he can get a head start on growing wealth. Besides the
basic move of opening a savings account, it is possible for your child to open a
Roth IRA. The I.R.S. sets no minimum age limit for IRA contributions; if your
son or daughter has earned income from a job and filed taxes, he or she can open
a Roth or traditional IRA with your assistance and contribute to it. Your child
may also buy a government bond with your help, or buy equity shares or make a
direct stock purchase via a guardian account or custodial account.1,2,3
Encourage them to set life and financial goals. Why not? It is not
far-fetched if your teen wants to become a millionaire; given inflation over
time, we may need to be millionaires down the road. Even if your son or daughter
simply sets a life goal – for example, to start a business someday or to
graduate from a prestigious university - he or she will start to think about
what that will take financially.
Wean them off plastic. As your children become young adults, the great
lesson is a simple one – spend less than what you make. If they have to go into
big debt, it better be for education’s sake and not for comparatively frivolous
reasons. Remind them that it is possible to pay off debt and plan to build
wealth at the same time.
Look back over your life for a moment. What shaped you more – the material
things you bought when you were 18 or 21, or the experiences you had when you
were 18 or 21? It is wiser for your son or daughter to spend money on an
experience that may “pay off” in life skills and character development, rather
than on a material item that will inevitably depreciate.
Convey that is not what you own, but what you do that counts. Hopefully,
your son or daughter will start investing early – and sensibly. Some young
investors like the thrill of day trading - of looking for the next hot stock
that will be the talk of Wall Street. It is better for your son or daughter to
learn principles of diversification from the start (and not retrospectively).
Getting rich slowly is not a bad idea. Investing seriously means staying
invested through market cycles.
Remind them of the power of compounding. If your child opens an IRA or
401(k) before age 30, that does so much in terms of retirement savings
potential. Yet few young adults focus on these retirement savings tools. The tax
information service CCH took a poll in 2007 and found that just 4% of employees
aged 25 and younger were maxing out retirement plans. That same year, Charles
Schwab conducted a survey and learned that only 40% of adults aged 26-40 were
contributing to an IRA.4
Looking back, what did you wish you had known? Today is as good as any
day to let your son or daughter know about some investment and asset-building
principles. At first glance, it may seem boring to them – but making money sure
isn’t. The more they know now, the more years they have on their side to grow
These are the views of Peter Montoya Inc., not the named
Representative nor Broker/Dealer, and should not be construed as investment
advice. Neither the named Representative nor Broker/Dealer gives tax or legal
advice. All information is believed to be from reliable sources; however, we
make no representation as to its completeness or accuracy. The publisher is not
engaged in rendering legal, accounting or other professional services. If other
expert assistance is needed, the reader is advised to engage the services of a
competent professional. Please consult your Financial Advisor for further