Your Charitable Lifecycle
When I was a financial planner, we helped individuals and families address their sequential financial needs and priorities at each stage of their life cycle. There are three major stages of one’s Financial Life Cycle: 1) Learning Years –Birth to-age 21; 2) Earning Years – Ages 22-64; and 3) The Yearning or Golden Years—Ages 65+. Today, we’re going to focus on the Learning Years. In the learning years, a youth’s priorities are spending money for technology, clothes, and entertainment. Their parents’ priorities are savings and investing for college tuition, supplies and boarding expenses.
So as a parent, there are a few key finance lessons you can teach your child:
How to budget
How to save and grow your money
How to give back
Budgeting lessons can start early. First – define the term budget. In simple terms, a Budget is a written table showing MONEY IN – MONEY OUT. Second, explain Wants versus Needs. WANTS are the newest Xbox or Iphone or whatever all the kids are getting. NEEDS are a roof over your head, groceries, electricity for your devices and more. Next go into more detail. Explain that a budget is all sources of earnings and income received – from mowing, babysitting, working a job; add money from birthday gifts, bat/bar mitzvoh gifts, and any borrowing from Mom & Dad. From that you subtract expenses. For a kid, expenses are snacks, sports/choir/band equipment or uniforms, hobby costs, costs of any extras your family doesn’t provide
Having a surplus or extra funds left after paying expenses is your goal. Besides spending on tangibles, a Kid’s budget can also include Saving and Investing. Initially, those surplus dollars can be saved and accumulated to grow in an interest-bearing account. The Time Value of Money is a beautiful thing! Dollars in an interest-bearing account grows on a compounded basis – so over time, you make interest and interest on the interest. That’s the way to grow your savings for a big goal like a bike, the latest I-phone, or a down payment on a car. Kids are also eligible to sock earnings away in an IRA. (Just imagine how much less she’d have to save for retirement if she starts as a teen!) Teach your child the habit of paying yourself first. If she socks away 10% of earnings or income as a regular “expense” in her budget, she won’t miss the few dollars. And better still, she’ll have a great habit with which to start her adult life – an emergency fund.
Giving back is the third valuable finance lesson, and is a key tenet of Judaism. And it’s something else to include in a kid’s budget. Children learn from the charity work and donations done by the adults in their world. They also learn to give of their time and talents in their Mitzvah projects. How can you and your child discover what cause or causes move them to donate? In Raising Charitable Children, author Carol Weisman recommends introducing children to charitable giving at 3 or 4 years old. Even at that age, she says, children understand giving and caring. How? She suggests several ways: 1) On a child’s birthday, each child would get to make a small financial donation to the charity of choice: 2) Ask each child – “what made you happy last year”; and ask “what made you cry”. Next, put the joys and sorrows into categories. Then talk about how to invest in your community so others share your joy and could be spared some sadness; 3) if you have several children or grandchildren, give the group a sum of money to donate, and require them to research options and decide together. (Note this doesn’t have to be big dollars. For an individual child – maybe $20. For a group, you decide what’s reasonable - $100 or $250?); 4) Make part of a child’s Chanukah gift, bat mitzvah gift or other gift giving occasions a donation to a charity of choice.