Financial stress is very common in the United States, with the majority of people expressing at least some concern about money. Between paying the bills, saving for retirement, and enjoying life’s pleasures, it seems there is never quite enough cash to go around.
No parent wants their kids to inherit financial stress. Fortunately, it doesn’t have to happen. In this article, we take a look at the emerging trend of “financial therapy.” We also examine ways parents can help even young children get a good grasp on finances.
What is Financial Therapy?
Technically, the field of providing people with emotional counseling to deal with their feelings towards money began in 2008, around the time of the Great Recession. It was then that the formal practice of people seeing licensed therapists to talk specifically about the anxiety they felt about money began.
However, therapists have been zeroing in on how money impacted people’s emotional states for much longer, stretching all the way back to the 1990s when studies first began to establish a causal relationship between financial problems and long-term stress.
Financial therapy is for anyone who feels stressed about their finances—which is an apparently very large group of people. In 2020, a survey revealed that 88% of respondents feel at least some stress about their finances.
It’s important to note that this does not mean 88% of respondents are living paycheck to paycheck. Financial stress is not always the result of income insecurity. It can also stem from specific, money-related tasks, such as saving for a child’s college tuition or preparing accounts for retirement.
The two leading sources of stress for people enrolled in financial therapy are not having stable savings accounts, and not knowing how to prepare financially for retirement.
It’s easy for children to inherit their parent’s anxiety about money. In the following headings, we will take a look at some of the ways you can set your children up for financial success.
Budgeting
Most people don’t start thinking about budgeting until they are college-age at the very earliest. While college-aged budgeting and financial planning can be an effective way to avoid extreme student debt, children are even more fortunate when they can start learning about budgeting at a younger age.
Of course, for kids, budgeting doesn’t have to be complicated. Sit down with your child, talk about their income stream (most likely an allowance) and discuss how they should spend it. Some should be set aside for savings. Another portion can be designated for fun things and splurges. You may even consider a third slice to be set aside for charitable donations.
How you divide up the financials will be specific to your family’s values. What’s important is that your child will learn how to develop and stick to a budget—an invaluable skill that will set them apart from the scores of college graduates who leave school with no inkling of how to manage their own finances.
Don’t Underestimate the Value of Having Your Child Hold a Job
Teenage employment has been on a steady decline for the last several years. Covid-19 likely shouldered much of the blame. Parents who once would have had their children maintain summer employment were hesitant to do so. Is it really necessary to risk exposure to the virus working behind the counter if you can afford to pay your child’s gas yourself?
The proliferation of vaccines has largely curtailed the risk of contracting Covid-19 at work, and yet there has not been a significant increase in teen employment. Holding a job is a good way for teenagers to start thinking about money the way adults do.
Not only does it put them in the habit of paying for things themselves—an important element of understanding what it’s like to have an adult budget—but it also introduces them to the world of checking accounts and taxes.
It’s all about exposure. Holding a job in high school will give your child vital real-world experience that they can look back upon as they enter the next stage of employment.
Start Thinking About Investments Early
It seems silly to get a child involved in the world of investing. And yet, they are at the best age to do it. There are several reasons why getting kids interested in investments as soon as possible is a good idea:
- Exposure: The majority of people in their twenties have little understanding of how the stock market works. This is unfortunate, as younger people are well-positioned to make risky choices with the possibility for higher yields. Because they have lots of time to recover from financial mistakes they can be more aggressive with their investment efforts.
- Low-risk: Children have less money to invest with and are therefore not at much of a risk.
- Compound Interest: People who get involved with the stock market early have the potential to see a significant return on their investment later on. Thanks to compound interest, modest investments made at the age of 18 can have significant value decades down the road.
People are eligible to trade stocks at the age of 18. However, parents wishing to start even earlier can establish a custodial account for their kids. This allows the child to participate in the world of investing while their parents have the authority to make final decisions.
Entrepreneurship
It’s easier than ever for kids to get a taste of what it is like to run their own business. Thanks to sites like eBay, they can easily set themselves up as e-merchants, buying and selling items they are familiar with in the hopes of turning a profit.
There are also more traditional forms of teen entrepreneurship to consider. Have a lawnmower? Consider letting your child use it to make money. Not only does this count as employment, but it also may spark their interest in starting their own business when they are of age.
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This content is made possible by Andrew Deen.
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