Preparing Your Child for Financial Adulting

From the moment the test comes back positive and all of the excitement, fears, and emotions flood your heart to holding your newborn baby in your arms for the first time, the thought of this small, fragile new life becoming a grown adult one day seems so far in the future it can be hard to even imagine it at the time. But that day does come and boy does it come fast! All of the careful and watchful parenting we do for our children when they are young does not end when they are ready to launch into adulthood, and preparing them for a successful financial future is just as important as making sure they learn to read and write. While the schools are getting better with integrating financial literacy, as a parent, there is still a lot to do and teach. The good news is it’s not as difficult or daunting as it might seem.

Getting your child understanding the value of the dollar early is important. Give them tasks, chores, or jobs that they can complete to earn some money and teach them the value of saving. Jars are a great visual tool to start with! When they reach the age to begin chores, set up one jar for a fun long-term goal (40% Save) which builds delayed gratification, one jar for immediate guilt-free purchases (50% Spend) which allows autonomous choices, and a third jar for charitable giving or helping others (10% Share) which teaches a community mindset. As they enter their teen years, having them get a real first job somewhere and opening up a real checking and savings account with them will take these lessons to the next level and teach them invaluable tools for proper budgeting and money management. You’ll also have your good local banker who will partner with you! You can even set up an IRA for your child and start it with some of the savings they’ve diligently collected! Statistics are amazing that show the massive compound effects of starting an IRA at a young age.

Age-Based Progression

• Ages 3–5: Use clear jars to watch coins add up.
• Ages 6–12: Introduce basic chores linked to the three jars.
• Ages 13–18: Transition jars into a real bank savings and checking account.

Establishing credit is the next task at hand! One of the easiest things I did with my own four children was, as soon as they turned 16, I added them as an Authorized User to my own well established credit card. A parent’s good payment history and length of credit on the account reflects on the child’s credit report. When they turned 18, my children already had a credit score around 740 of their own just because of being added as an Authorized User on my card! So, when it was time to apply for their first student credit card in their own name, they were approved right away. If adding the child as an Authorized User is not an option, having them apply for a secured credit card once they reach 18 is a great alternative. A very important rule for credit cards to teach them is maintaining a 30% or below utilization of their credit card limit. If the credit card utilization goes above 30% of the credit limit, and the card gets “maxed out”, this will hurt and lower their credit score! By teaching them to keep a small balance on their credit card and to pay their credit card statement in full each month, this instills the habit of not depending on the credit card to live, but rather to use it as the tool it is to earn rewards and build strong, good credit for their future. The credit card establishes a revolving credit line on their credit reports. Installment credit is the other type of credit to establish. Getting an installment loan in their name whether it be a small credit building personal loan, or a student loan will do the trick. Teaching them to budget their money in their bank accounts, establish a healthy savings account, and teaching them to pay their lines of credit on time each month with these first initial small lines of credit creates life-long habits that will ensure they are successful as they really begin entering the adulting world. By helping them establish a good credit score early and teaching them how to keep and manage that good credit score will ensure they get the most competitive interest rates and easy approvals when they need them. They will be ready to handle their first auto loan, and one day their first mortgage!

Another thing to be mindful of is the increasing identity theft fraud that we face and teaching them the steps to take to prevent it the best they can. Tell your child to never give any of their personal information, especially their social security number, to someone who called them on the phone. Fraudsters can sound flawlessly professional. Teach them to hang up and call the company back to confirm it’s legitimate. Another tip is to have your child create their free account with all three of the national credit bureaus, Equifax, Experian, and Transunion. Here you can help them “freeze” their credit. This protects fraudulent accounts from being taken out in their name against their credit. They can always “thaw” their credit reports for any day they do need their credit pulled and then it automatically freezes again the next day to continuously keep them protected.

Some other good news is you are not alone in this! Finding a trusted local bank and creating a relationship with your good local banker will give you a valuable resource and guiding hand that can come along side you and your child to help instill and teach these life-long financial adulting lessons and ensure your child is ready to hit the ground running when that day that was once unimaginable finally does come. Our amazing Anderson Brothers Bank Summerville Team is here and ready to walk beside you and your family now and for many years to come!

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