To those of us that are parents, many would agree that our greatest asset is our children. We do our best to raise happy, healthy, and kind kids that will hopefully make the world a better place. We teach them how to deal with adversity. We teach them how to overcome rejection. We strive to provide them with everything they need to be successful in hopes they will grow to be the best they can be.

But many times, we miss the opportunity to teach them basic financial fundamentals that they need to thrive in the fast paced “real world”. Often, much of the focus on financial education is absent during high school and college years which can prove highly detrimental as they learn to navigate life away from home. Having a good grounding in basic financial topics can be hugely beneficial. What they learn at home will help set the foundation for their relationship with money for the rest of their lives.

As a firm with over forty years of experience in working with clients and often their children, we at Sand Hill have identified five topics that we believe to be helpful in raising the next generation of confident, responsible, financially independent individuals.

1. Budgeting: Gone are the days of handing over a cash allowance. Credit cards and electronic payments are making it very easy for kids these days to spend what they may not have. Kids need to know how to identify spending on needs versus wants and how to budget appropriately for each. Equally important is learning how to budget for emergency funds and how to use (not avoid) debt in an efficient way.  

2. Debt Management: It is important to teach the difference between good debt and bad debt.  As mentioned in the first point, the successful use of debt can be a powerful tool used in generating wealth. Conversely, it can be a slippery slope if not managed properly. Nearly one in five young adults ages 18 to 24 with a credit record in the U.S. have debt in collections.¹ Educating this group on the contractual credit terms they agree to is essential to the successful use of debt versus struggling to keep up.

3. Taxes 101: Many young people are not faced with the concept of taxes until they are thrust into their very first “real” job. Knowing the basics of taxes, particularly income taxes, is crucial as it relates to budgeting and ultimately saving and investing. In conjunction with understanding the concept of taxes, knowing how to actually file a tax return and pay the associated tax bill is just as (if not more) important. Alleviating the anxiety surrounding tax filing can easily be done with some very basic education.

4. Disciplined (Retirement) Savings: Now, most of us know from personal experience that it is hard to conceptualize retirement when you are starting your first job, but it can certainly pay off to do so. The earlier you start saving, the better. Why? The power of compounding. Over long periods of time, compounding can become very impactful. Being a disciplined saver, particularly early on, can make a significant difference in wealth creation.

5. Investing Basics: Teaching the next generation the basics of investing should be fun and not complicated. What are the kids or young adults interested in? This should be an obvious starting point as a way to gain traction on what might otherwise seem like an unappealing topic or something to do much later in life. Encouraging them to explore trends and research companies that they are familiar with can really demystify the concept of investing. Investment risk is also a big component that should be discussed as part of the investing since the two go  hand in glove.   

Just like any education-related topic, starting with the fundamentals is essential. It is vitally important to educate the next generation on the importance of financial responsibility—not only for their well-being, but for this generation’s as well. At Sand Hill, we welcome the opportunity to have these discussions with our client’s children, no matter what age.

_{1-https://www.urban.org/research/publication/what-can-policymakers-do-help-young-adults-cope-debt}