Advice For Your Kids – How Would You Answer This Question?

I received an email earlier today about a new survey that Charles Schwab conducted called Rethinking Retirement (more on this in a follow-up post). On the Rethinking Retirement homepage, there’s a link to take the survey, which I did.

One of the questions towards the end of the survey pertains to parents and children. I’m curious to know how you would answer this question:

Of the following, which are the most important lessons in saving and investing for parents to teach their children? Please select up to two.

A. Live within your means
B. Begin saving at an early age
C. Avoid high interest debt
D. Get sound financial advice from a trustworthy resource
E. Learn how to invest wisely

I had a difficult time picking two answers as ALL OF THEM seem important to me. That said, I chose the first two. My thinking was that if parents can teach their kids to live within their means, they won’t be as likely to run out and use high interest debt like credit cards. The second one was a no-brainer since we all know the power of compounding over long-periods of time. Yes, they need to know how to invest wisely, but I think starting earlier is more important as long as they aren’t just storing their money under a mattress.

It turns out that most of my fellow Generation Xers agreed with me:

I’m curious. How would you answer this question?

18 thoughts on “Advice For Your Kids – How Would You Answer This Question?”

  1. The same – A and B. When our daughter starts first grade next year we plan on taking her to the local bank to open up a savings account. We’re hoping they will have those old school ledgers so that she can write down her deposits and see the money grow over time. Same goes for our son when he starts first grade.

    As for living within means, on a recent family vacation to Disney World I gave each child $10/day to spend however they wanted, and when they ran out that was that. For the most part they did well and would take a long time to pick out what they wanted to buy since they knew they wouldn’t be getting any more money that day.

    but I definitely think “A” and “B” are the most important things.

  2. I think that if you live within yours means that means you should have money to save. So you will be able to start saving from an early age.

  3. A & C. I think too many kids get swept away by credit cards and end up in crazy debt before they graduate from college.

  4. Well, it’s pretty much a progressioon, isn’t it?

    If you don’t learn how to A, it is unlikely that B will have any long-term effect and it then becomes highly unlikely that you will C, effectively rendering D (which logically precedes E) and E pretty much beside the point.

    My parents have lived that principle all their lives and TRIED to teach me that but it didn’t take. Now I’m 40 and desperately trying to catch up.

    So: Now that we all agree on what parents should teach their children, any suggestions on how to do it? I have a 5-month-old dought and it’s never too soon to develop a strategy!

  5. I thought the same. But living within your means should cover it.

    Also, we’re not generation ‘Y’, we’re ‘millennials’ as we came of age during the millennium.

  6. JLP,

    I agree with you…(A & B) would be the most important to me. If you think about it, if our kids learn to live within their means and save at an early age, then they won’t have to worry too much about high-interest credit, loans, mortgages, etc. They would understand what it means to save and work for what they ultimately purchase. The foundation would be established for them to make wise decisions regarding their finances.

  7. Ugh.

    Dear Sam,

    Please, for the love of all deities, do not use the term `millennials`. Doing so only encourages use of said term, and gives justification to a term that should have never been invented. Stick with what works: Generation Y.

    If someone called me a millennial to my face I’d probably punch them.

  8. “A” for sure, but it’s a toss up between “B” and “C.” High interest debt is just such an incredible burden to carry around when you are young – and too much of it is nearly impossible to recover from in the short term. On the other hand, starting early is the key to taking advantage of compounding. Too bad there isn’t some combination of the two answers.

  9. I consider the two most important to be A) Live within your means, and C) Avoid high interest debt. Although I would say to avoid ANY debt, because debt is an indicator that one is not living within his means.

  10. I think all are important, but just to stir the pot a little bit, I am going to pick D and E.

    I think parents can lead by example on A,B, and C…but when it comes down do it, I think there are not enough resources on how and where to invest your money wisely for kids and adults.

    Obviously all are important, and as I was reading them I was at first inclined to pick the first 2, but then from personal experience I really wish starting out I had more advice on D and E.

  11. I think one option is missing. That is “don’t be ashamed of money.” Be open and honest about money, and all the issues associated with it. With open communication, you can cover all those choices and hopefully instill a healthy dose of respect for money along with it.
    My folks thought they taught me all that stuff, but I came away with a whole different lesson than they tried to put across. I’m still reaping the rewards…

  12. I would pick A (live within your means) and D (get sound fin’l advice).

    Here’s my thinking:

    A. Live within your means – This is a no brainer. Not much can happen unless you follow this one. Of course, there will be periods of time where you might have to violate this rule (ex. grad school).

    B. Begin saving at an early age – This is a nice to have, but not completely necessary one. I did not get out of CC debt and really start saving until I was almost 30. Didn’t pay off student loans until age 35. Age 30 – 45 I was able to save and invest very aggressively. I really don’t think starting earlier would have made much of a difference, given the relatively small amounts I might have been able to save if I were more diligent.

    C. Avoid high interest debt – This is a good idea, but not an absolute. You can take on a certain amount of high-int rate debt briefly for a good purpose. The key is knowing how you’re going to pay it back.

    D. Get sound financial advice from a trustworthy resource – This is important. Learning from people who’ve already figured out how to play the game is critical. Too much of the PF blog community focuses on defensive strategies, basically saving and thrift, as if they were holy commandments. How about playing good offense too like how to invest, how to get ahead in a career, how to earn more, how to start and run a profitable business, how to handle tax & legal issues, etc. I prefer to focus less on “retirement” as an end goal, and more on “financial independence.”

    E. Learn how to invest wisely – Redundant – This is already covered under D.

  13. A & C. You can start saving at any point (earlier is better of course), but high-interest debt is a killer, and living beyond your means is just stupid beyond words.

  14. I would go with A and E- spending less than you earn is fundamental if you don’t you are in trouble no matter what else you do! If you learn to invest wisely, you are likely to invest early, unlikely to go into debt as you should understand how much the interest will cost you, and you can be your own source of good advice. But in the real world you don’t have to pick just two do them all!
    dmstranger don’t be afraid to talk to your kids about money:
    A> Set a good example.
    B> Explain your actions and why you are doing them.
    C> Give them some money and let them make their own choices.
    D> Talk about their decisions, ideally ask them questions and let them figure out if they made a good decision or not and why it was good (or bad).
    -Rick Francis

  15. Yep I agree with Rick Francis. A implies C, E implies B and possibly D.

    It’s subjective though. Miguel argues that D implies E. I argue that learning to invest wisely entails asking trustworthy sources.

  16. What if you can do A, but you have nothing left to do B, thereby rendering C, D, and E of no help?

  17. I’m surprised the one I would definitely picked had the least according to the graph. For me D is the most important, because if chosen wisely will impart all the others; it’s like a catch all.

  18. Great post! Its so important to teach children about money early, to prepare them to stand firmly on their feet later on in life.

    My passion is to help kids and teens develop money management skills and financial habits that will last a lifetime.

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