Many women are at a disadvantage regarding money and money management. Dads can change that by teaching their daughters seven easy money lessons early in life.
According to a study by Pew Research, the share of couples in which the husband makes more than his wife has dropped from 95 percent in 1960 to 75 percent as of 2011.
Conversely, the proportion of families where the wife earns more than her husband has increased from 4 percent to 23 percent over the same period of time.
While women continue to make strides within the workforce, there are still disparities regarding their wages and issues surrounding equal pay for equal work that need to be addressed.
Additionally, while wages for women are increasing, their financial savvy is lagging, and only 1-in-5 women feel comfortable making financial decisions for their family.
As a father of two daughters, I want them to grow up to be financially astute and well versed in all aspects of money management. My girls could easily end up as the primary earner in their families or the sole breadwinner married to a stay-at-home dad. While you might think some of the topics below are too much for kids to understand, it’s important to normalize the conversation regarding cash and empower children early regarding these topics.
Here are 7 invaluable things I’ve learned as a father and the primary provider for my own family that will pave the way for children to become financially independent adults. I should note that I’m not a financial advisor, but I’ve spoken with enough financial professionals and accountants over the years assembling my own plans for my family of five, to offer these common sense suggestions.
1. Get health insurance.
Recent research has found that medical bills are the number one cause of personal bankruptcies within the U.S. The single most important thing any man can do to ensure his family’s finances are secure is to get health insurance for every member of his family. It’s important to instill in our daughters the need for healthy eating, sleep and exercise to do all we can to avoid unnecessary health expenses.
But health emergencies happen and we often talk with our girls about the importance of getting a good education to enable them to pursue a career that allows them to have healthcare coverage for themselves and their own family one day. I’m simply modeling this behavior for them now.
2. Get life insurance.
Of course nobody wants to think about their own death, but primary earners within a family need to man up and face the facts.
According the Annual Insurance Barometer, 80 percent of adults believe that most people need life insurance; only 1 in 5 people are very likely to recommend it.
Life insurance should be at the foundation of every financial plan if you have dependents. Remember, life insurance is ultimately intended for those left behind at the passing of the primary earner of a family. If you don’t know where to start, the Better Business Bureau offers a nice introduction.
I’ve opened term life insurance policies for each of my kids as a way to introduce them to the topic, and we discuss the statements and what they mean when we receive them every quarter.
3. Save for your kids’ education.
According to the College Board, the average 2013-14 cost of a four-year degree at an in-state college was roughly $88,000 while the cost for a four-year degree at a private college was $176,000—and you can expect those numbers to increase on average by 4.01 percent each year due to the confounding annual inflation rate unique to higher education.
The two best ways to save for your child’s education is via a 529 plan, which is run by most states, or a Coverdell Education Savings Account (ESA), which is federally-authorized college savings account.
We have both types in place for each of our kids, and you can set these up on your own without a financial advisor—but do your research first!
4. Introduce kids to the stock market.
I want my daughters to understand that the money they earn from their future career will be “active income” while money they earn from investments and ownership will be “passive income,” because it’s a residual income stream that’s generated without their effort.
In my opinion, the U.S. stock market is a great way to teach kids those types of lessons. I also want my kids to experience actual gains and losses within the market—with their own money—so they’re familiar with those financial experiences and mistakes now.
We do that via a service called ShareBuilder that enables a person to buy partial shares of nearly any publicly traded stock very inexpensively.
In our case, each of us started with $50 and invested it across four stocks that we each picked.
Each week we monitor which of our picks are doing the best, and at the end of each quarter the family member with the greatest return on their investment—or least amount lost during the period depending on market conditions—gets another $50 deposited into their Sharebuilder investment account.
Each of us have had turns winning the quarterly competition. Regardless, it’s a fun way to educate our girls about capitalism and stock market. You can also do it without risking any money by creating faux portfolios and just tracking them—either way your kids (and you) will learn a lot!
5. Give your kids an allowance.
Once your children can understand the concept and value of money—for instance, the idea that a single $10 bill is more valuable than 20 nickels, this is a tricky concept for many kids who associate more physical coins with more value—you should start giving them a modest allowance.
Giving your kids an allowance is a great way to help familiarize them with a variety of important concepts such related to finances such as budgeting, saving, investing and spending.
A few bucks a week is enough initially—we started giving our two daughters $5 per week so they could easily handle the next step.
6. Teach your kids to categorize their money.
Very few individuals know how to significantly generate wealth. The single best book I’ve read for adults and children is titled Five Wealth Secrets by Craig Hill.
One of the key concepts introduced in this faith-based book is the idea of divvying up every paycheck into separate “jars” – Hill labels each jar as giving, offerings, savings, investing and spending respectively, with a recommended percentage of your regular paycheck going into each jar.
This jar concept is the foundation of budgeting and is very instructive for both adults and kids to help you live within your means as opposed to spending every dime earned.
7. Avoid personal consumer debt.
I define personal consumer debt as any type of borrowing to acquire something that’s going to decrease in value in the short-term.
On a side note, I think it’s ok to borrow to pay for a house, start a business or pay for a college education. Borrowing for those types of needs are investments that appreciate in value in the long-term.
We only let our kids use cash when they want to buy something, and we want them to get into that habit now so they’ll continue to do that into adulthood. If they don’t have the money themselves, they can’t buy it.
We also recognize their need to establish credit once they’re older. To help them in that regard we plan on setting up secured credit cards for each of them when they’re 16 years old, so we can discuss and practice responsible credit use while they’re still living with us.
I wish my parents had done some of these things with me—regrettably they didn’t. When I graduated high school I couldn’t balance a check book, had no idea what a budget was nor did I have any savings or investments. Unfortunately, some girls grow up without any knowledge of finance, because their parents make assumptions about what their future will look like.
Since I had to acquire financial wisdom myself, I want to make sure that my kids—and especially my daughters—have a strong financial footing and money management skills that will enable them to stand on their own two feet in the future.
Question: What’s the best money-managing advice you ever received?