June 2019 Notes Along the Path
Topics for this month:
Top ideas for teaching kids about money
No kids? Click to skip ahead to Market update.
Kids learn the basics in school–reading, writing, and arithmetic. But schools avoid almost any instruction about money. Here in Virginia, they do far more than most states. Civics in 8th grade and Personal Finance is a graduation requirement for High School. The problem is the content is short on actual advice, and the timing is long after habits are formed.
I believe it’s essential to start talking about finances early when kids are young. You can begin to share your values and help them shape their views on money in a culture that places a premium on “things,” not savings. But it is never too late, as you will see some of the ideas (#5) come to the fore with each year your child gets closer to graduation.
Of course, you know we can’t shelter our children forever, we must teach them. So here are some practical tips that I believe will help put your kids on the right path.
1. Teach delayed gratification.
It's your Most Important Task in this arena. Deep down, you know it. Some of us are better than others, but few have truly mastered the art of patience.
Sometimes reframing it for your kids can be helpful. Anticipation can be half the fun! It’s the journey. Think about it: your kids enjoy awaiting the arrival of their birthday, or the excitement that precedes going to an amusement park or on an upcoming family trip.
If they want to buy a pricey item, help them save for it. You can lend support by setting up various methods for savings. We remember the piggy bank. Money goes in, but never really comes out. Instead, they set up three jars. One for savings, one for spending, one for giving. Which brings us to…
2. Incorporate giving it away.
I believe the giving jar is as important, if not more so than the savings jar.
Do your children have a cause that resonates in their heart? Do they want to give to through a religious context? Is there a local food bank or animal shelter your daughter or son can assist with donations?
Learning to let go and help those who are in need will create a stronger sense of altruism and selflessness that, if taught early, will blossom in them as adults. Perhaps just as important, it will plant the idea that there is enough for them, more than enough even. Recognition of the world's abundance makes for happier people of all ages.
3. Kids need money.
Theory without practice won’t work. Kids need a hands-on lesson. You may start with an allowance (some refer to it as a commission)—you may pay kids for various chores, or both. That’s a parenting preference, and there are advantages to both.
What is an appropriate allowance? According to a study by RoosterMoney published by thebalance.com, the weekly allowance earned by a 4-year-old averages $3.76. At eight years of age, an allowance averages $7.27 per week. At 12, the allowance is $9.85 and $12.26 at 14.
The study offers reasonable guidelines, but they are pretty broad, so you will want to adjust at your discretion.
What about birthday gifts, Christmas gifts, etc.? Set goals with your children, but I lean heavily toward the savings bucket. Those annual gifts will add up over the years. Your kids could graduate high school with a tidy sum of cash if they have the discipline to save.
4. Teach by example.
A friend recalled to me a time she paid for her purchase at the gasoline pump, got back into her car, and drove away.
Her young son accused her of stealing!
He understood the idea that “what’s not ours isn’t ours,” but he didn’t grasp the concept of “plastic money.”
She had to explain how she paid without going into the store. She discussed the concept of a credit card and emphasized that she always pays the balance in full at the end of each month.
Today, I still periodically mention to my kids the benefits and dangers of credit cards.
Was this a life lesson for her? I certainly remember my parents paying their credit card balances off each month.
In addition, consider using lists when shopping. Your children will see that it helps avoid impulse buys. And, as kids grow older and the discussions are age appropriate, explain why you try to avoid impulse purchases.
Use various examples from your life when you teach your kids about the importance of money and savings. I fondly remember working my friend's paper route when he was on an extended summer vacation and using half the money to buy my first 10-speed bike (to me that seemed like state of the art in 1976!)
5. Encourage summer and after-school jobs.
Trading time for cash via a job helps kids learn the invaluable lesson of hard work. It also supplements savings and provides spending money.
Cutting the grass or the neighbor’s grass, shoveling the snow or the neighbor’s snow, yard work, babysitting, helping in the family business, working retail, household chores, or acting as a lifeguard are all viable options.
Besides the extra cash, they will learn a strong sense of pride and responsibility that will carry over into adulthood.
6. Open a savings account.
Not that long ago, a savings account earned a respectable interest rate. That’s not the case today although it's better than a couple of years ago. Still, a saving account helps kids learn.
A 5-year-old may not need a savings account, but adulthood isn’t far away for a teen or pre-teen. As young adults, they will have a checking account, debit card, and eventually, a credit card. Baby steps in the right direction will ease the transition.
As they grow older, discuss the benefits of investing with your kids. Outside of a college savings account, you may open an account in their name and teach them about investing. You could start it with seed money and have them contribute regularly. More importantly, help them buy into a savings goal. That way, they will take ownership.
If you’re unsure about how to start the process, we’d be happy to point you in the right direction.
7. There’s an app for that.
Today, there are mobile apps that can help kids. Bankaroo, iAllowance, and PiggyBot are just a few. We have given each of our teenagers a Current card. It works like a Visa, but it is tied to a debit account that I fund with their allowance. The landscape is changing rapidly, so an online search may uncover something else that will be most appropriate for your child.
8. Guide them with goal setting.
Are they trying to save for something? Help them come up with a plan and incentivize with matching funds. Companies do this with 401ks, why can’t parents?
Discuss the importance of needs versus wants. A teenager may need a bicycle. But do they need one with all the bells and whistles? Or, are there reasonably priced bikes that won’t bust the savings account?
9. Money isn’t everything.
Yes, it’s important. It gives us choices. But by itself, money can’t buy happiness. I like to tell mine that in a capitalist society like ours, money can fix a lot of problems, but if you are a jerk or if you don't like yourself, money won't help you with that.
10. Let them make mistakes.
It's hard, for me anyway, not to bail them out all the time. Ashley LeBaron of the University of Arizona put it well when she said, “Let them make mistakes so you can help them learn from them, and help them develop habits before they’re on their own when the consequences are a lot bigger, and they’re dealing with larger amounts of money.” [Link]
Not surprisingly, her research showed those who had practical experience with money while kids learned how to work hard, how to manage money better, and how to spend it wisely.
That may be the most important desired outcome.
Navigating Global Headlines – June Market Update
Last month I said that investors remain optimistic that U.S. and Chinese trade negotiators will come to terms on an ever-elusive trade agreement. Unfortunately, “ever-elusive” continues to be the operative word.
On May 5, President Trump surprised investors by tweeting that tariffs on some Chinese imports would rise from 10%-25%. Why? According to several news reports, China had backed away from previously agreed-upon terms.
Not surprisingly, China retaliated, and there has been no shortage of incendiary rhetoric between the two economic powers.
At month’s end, Trump surprised everyone by levying new tariffs on Mexico. His stated plan is that all goods will be subject to a 5% duty, rising to 25% in October unless Mexico gets a handle on the surge in migrants coming into the U.S.
The announcement of a new barrier between Mexico, which is the 2nd largest U.S. trading partner behind Canada (U.S. BEA), was nothing short of a bombshell that further exacerbated economic uncertainty.
Still, selling has been relatively subdued, with the broad-based S&P 500 Index down less than 7% from the April 30 high. Placed in a historical context, the average maximum annual peak-to-trough drop in the S&P 500 Index from 1980–2018 has been nearly 14% (LPL Research, St. Louis Federal Reserve).
Today, investors are unsure how to model and price in economic activity going forward; hence, the short-term reaction is to move away from stocks and into the safety of Treasury bonds.
The situation is fluid right now. Best case Chinese scenario: an enforceable deal that helps level the playing field and protects U.S. technology and intellectual property. More likely, negotiations will drag on for months, and investors will be forced to adjust to a new normal. It’s far from optimal, but it is a reality.
Additionally, the threat of tariffs on Mexican imports is sub-optimal from an investing and economic perspective.
What to do
Control what you can control.
You can’t control the stock market, you can’t control headlines, and timing the market isn’t a practical hope. But, you can control the portfolio.
Your plan should consider your time horizon, risk tolerance, and financial goals. There is always risk when investing, but a competent, fiduciary advisor makes recommendations with all of those elements in mind.
As I’ve said before, the plan is also designed to remove the emotional component. You know, the one that encourages the average investor to sell near the bottom out of fear and encourages greedy buying when stocks are soaring.
If you’re feeling unsure these days or have questions, let’s have a conversation. That’s why we’re here.
Table 1: Key Index Returns
Source: Wall Street Journal, MSCI.com, Morningstar, MarketWatch
MTD: returns: Apr 30, 2019-May 31, 2019
YTD returns: Dec 31, 2018-May 31, 2019
**in US dollars
As always, I’m honored and humbled that my clients have allowed me to serve as their financial advisor.
All the Best!
Your Best Path Financial Planning
About Gordon Achtermann Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC-registered investment advisor. Tel: (910) FEE-ONLY. Your Best Path Financial Planning may offer investment advisory services in the State of Virginia and in other jurisdictions where exempted.