Once upon a time parents could reasonably assume that their children would one day grow up to claim a spot in a telecom giant’s lab, a bank’s lending department, or maybe a manufacturer’s line. There they would advance and earn a solid living until it was time for a gold watch and a pension that would fuel a few decades of golf in a sunny state.
Surely the secure lives most middle class people expected, circa 2000, were not without clouds, but they seem almost fairytale-like compared with the economic realities for which parents now have to prepare their children. Realities that appear more stark with every news report of debt-laden college graduates unable to find full-time jobs or 50-year-olds deemed too old to be hired. These stories, paired with talk about the long-term viability of Social Security and Medicare, make it sound like a good idea to start retirement planning in kindergarten — and maybe it is.
Accountants Ed Mendlowitz and Julia Van Saun of WithumSmith + Brown give a free seminar on “How to Raise a Financially Responsible Child” on Wednesday, December 19, at 5:45 p.m. at the McGraw-Hill Federal Credit Union, 120 Windsor Center Drive, East Windsor. Call 609-426-6528.
Parents looking for a role model for their children can point to Van Saun. Still in her early 20s, the 2010 graduate of Fairleigh Dickinson (B.S. and M.S.) owns a townhouse but puts money away every month in a fund earmarked for the purchase of a single-family home. She and her husband, civil engineer Steve Van Saun, also contribute to retirement funds, including 401(k)s, and are building a portfolio of mutual funds.
A member of the state accounting organization’s financial literacy committee, Van Saun says that the topic of financial literacy is “something a lot of people aren’t aware of.” But she is definitely not among the financially clueless.
“I’ve done a lot on my own,” she says. “I paid for college, for a car.” She has also worked since she was a young teen, first at Kings Supermarket, where she helped her aunt in the bakery department, then at Dunkin’ Donuts. She also cleaned houses. “If I wanted anything, I paid for it,” she says.
“My mom is a cashier at A&P,” Van Saun recounts. “My dad is in the produce department at Pathmark. My dad has been there forever, so he works full time, but my mom works part-time. It’s harder to get full-time work than it was in the past. People are begging for more hours.”
Van Saun says that her parents live “paycheck to paycheck.” As a child, she recalls, there was back-to-school shopping, but there was a strict limit on how much each of the three kids in the family could buy. There were lots of hand-me-downs, but, she says, “luckily I was the oldest.”
While her parents couldn’t provide a lot of frills, they did help Van Saun by constantly drilling home the importance of college. She started out at Sussex County Community College after taking a year off after high school. Previously a mediocre student who “hung out with a bad crowd,” something clicked for her at community college. Right off the bat she earned a 3.93 grade point average overall and a 4.0 in accounting, where she was impressed by a female accounting professor and decided to make a career in that field.
Now, proud to be the first college graduate in her family, Van Saun is thinking ahead to the day when she has a family of her own. “I want my kids to have things I didn’t have, but they won’t be spoiled,” she vows. “They won’t drive a Mercedes in high school.”
Not yet ready to start a family, she is aware that children are expensive, but thinks that good budgeting can stretch income to cover the extra outlay. Her advice to parents who want to raise financially responsible kids:
Be a good role model. Children copy what they see. It’s evident in the way they eat their soup, greet their grandparents, and shoot baskets. Copycat behavior can also be expected in their financial lives.
Van Saun’s parents taught an important lesson when they put limits on spending, including those back-to-school purchases. It’s all too easy to give in to children’s desires and just put extras on a credit card. Parents who stand firm, and explain that extra outfits just do not fit into the budget may help kids to be responsible consumers, too.
Parents can also make their children aware that savings are an important budget item for the family. Even more than adults, children tend to hate putting off the gratification of getting a new toy — and later, a new computer or car. But it can be easier if parents save systematically for the things that they want and let their children know that some things they would love to have are just not compatible with the family’s financial resources.
Separate wants and needs. Kids are expert at pleading for computer games, motorized scooters, and American Girl dolls that they “need.” The short term pleading will probably not stop if parents talk about — and demonstrate in their own lives — the difference between wants and needs, but down the road the lesson may kick in.
“Nobody needs to go out to dinner,” Van Saun gives as an example. If parents are clear on the difference between needing to pay the mortgage and wanting to get away for a Caribbean vacation in the dead of winter, children will begin to pick up on the difference.
Provide purchasing practice. As a child and teen-ager, Van Saun had to buy anything she wanted. Clothes, tickets, CDs, college tuition, it was all on her because her parents didn’t have the extra money. Many parents can easily cover all of these expenses, but it might be better not to. Soon enough youngsters are going to be on their own, and practice at prioritizing spending, as well as savings goals, is good practice.
“Give children an allowance and have them do work to earn it,” is Van Saun’s advice. They can then save for things that they want short term and can put money away toward bigger ticket items.
Talk about investing. Chances are excellent that today’s toddlers and teens will be close to 100 percent responsible for their own retirements, which they will reach only after holding many different jobs, possibly in several different career fields. More than ever before, they will need a thick financial cushion, not only for retirement, but also for the real possibility of stretches of unemployment and underemployment.
While a kindergartener is unlikely to benefit from dinner table talk about the relative advantages of stocks and bonds, older children can begin to learn about the importance of investing, diversification, and the huge advantages that starting young and taking advantage of compounding can bring.
Children can even start building portfolios of their own. Van Saun suggests savings bonds as a good start. She recalls receiving them as gifts when she was a child. “They paid 4 percent, which was better than a bank,” she says. “And I still have them.”
Talk about building credit. Van Saun’s 22-year-old brother doesn’t have a credit card yet, and she thinks this is a mistake. “How is he going to buy a car? Buy a house?” she worries. While there are few financial miseries worse than runaway credit card debt, she points out that building credit is an important part of financial life.
Credit cards are generally easy for college students to get, and Van Saun thinks that obtaining one is a good idea. Paying off the balances promptly is also a good idea. “You don’t want to be paying all that interest,” she says.
Whether it’s credit card debt or a big house, Van Saun says that financial literacy involves being careful “not to get in over your head.” Parents who show their children how to live within their means while saving for the future are giving them a far greater gift than even a sackful of the season’s must-have toys. Financial literacy will not show up on any child’s letter to Santa, but is something they will be thankful for throughout their lives.