Teen finance 101 for your clients’ children

As trusted tax advisors, we help and navigate our clients through all sorts of life events that present their own set of circumstances, and tax scenarios and implications. Taxes are an important part of this financial journey. However, equally important is the foundation and understanding of fundamental and core principles of personal finances. This is crucial to prepare for, and weather, life’s pitfalls, as well as plant the seeds for future goals, aspirations, and success.

As we meet with our clients on a regular basis throughout the year—and most notably during tax planning sessions—there is an opportunity to educate our clients’ children. As they begin to embark on their own journey, they are the next generation and potential future clients. This allows us to further service our current clients, and strengthen and deepen existing relationships in a holistic way.

As our clients’ children become teenagers and young adults, they will begin to work and earn wages for the first time, prepare for college or a trade, and begin to develop long-term personal and professional relationships. These important events provide great learning opportunities.

Financial literacy

Unfortunately, financial literacy hasn’t been a large part of the high school curriculum. However, in recent years, there has been a large push to provide a financial literacy course. According to a recent article by Ramsey, 25 states require high school students to take a standalone personal financial course in order to graduate. And within many households, it may not be a topic that’s formally taught or discussed. Previously, it’s been something that we’ve learned from experience, failure, and word of mouth.

Many of us can start out digging ourselves into a hole or start out with a deficit. With large amounts of student debt, consumer debt, a competitive job market, and lack of retirement savings, it’s become increasingly crucial for teenagers and young adults to be equipped with, and aware of, the knowledge needed to at least start off with a clean and empty slate.

Holding personal finances 101 seminars for our clients’ teenage children

As tax advisors, consider hosting a seminar for your clients’ teenage children and young adults. You can begin the discussion and make them aware of the financial habits and know-how needed to become able and astute in managing their personal finances—and prepare for big life events.

This can be an active discussion and dialogue. Consider bringing in guest speakers who can talk about their own experiences and journeys: clients who are in college, young professionals, and even interns and staff members in your firm. An added plus: This is a great way to engage, connect, and invest young professionals in your firm.

Our clients’ children are a large part of their tax planning. If there already hasn’t been a discussion, this can serve as an opportunity for parents and children to have an open dialogue about their child’s future aspirations, financial considerations and support, expectations, and how to get there through effective planning and alignment.

While there is much to learn about personal finances—and it is an ongoing journey of discovery, education, and circumstances—four points essential to begin the discussion include:

1. Budgeting
2. Tuition and student loans
3. Credit cards and consumer debt
4. Saving and investing

Budgeting

It is important to teach teenagers about earning income and necessary recurring expenses. When a child gets their first job and paycheck, learning about tax withholding, Social Security, and Medicare is one of the first steps in understanding take home pay. This includes the frequency and regularity of incoming money, coupled with paying off essentials such as housing, food, utilities, mobile phone, and car insurance. As children become older and start to own or use large and essential items, understanding that those possessions have associated maintenance and expenses helps them understand proper budgeting.

For example, consider having them experience paying for their portion of the wireless phone bill, gas in a car, routine car service, and their own clothes. Having to pay for necessities out of their own pocket with a finite amount of saved funds reinforces the purpose of effective budgeting, and naturally introducing the concept of an emergency fund. When a phone breaks, a car isn’t working, or they don’t have enough money to go out, it also starts to define and prioritize emergencies, needs, and wants when needing to make financial decisions on how to spend their money.

Tuition and student loans

Rising student loans have become an issue, as students are graduating with increased student debt that can potentially outpace their income. It is important to know how a student’s education will be funded. Candid discussions and questions will need to take place:

• Will the parent be assisting the student? How much?
• What scholarships are available?
• Does the student qualify for financial aid?
• What types of student loans are available?
• Will the student be working?
• Is community college an option?
• Is trade school an alternative?

Additional factors to take into consideration are expenses such as room and board, transportation, and supplies.

Taking the previously mentioned factors into consideration, students may need to view college as a return on investment. What is the market and expected salary after graduation? What is the industry and hiring outlook in the future? When can the tuition be expected to be paid off? Will student debt be carried after graduation?

Credit cards and consumer debt

As teenage children become older and later plan on big purchases, a good credit history is essential through timely and full payments. Before a child reaches 18 years old, a parent can add a teenager as an authorized user to their account.

Understanding good money and financial habits at an early age can help a teenager be more accustomed and experienced with prudent credit card management. Understanding that the credit card should be used as a form of payment to purchase items you are able to pay for now is a fundamental concept. It is imperative that the teenager learns that carrying an unpaid balance subject to largest interest rates can be one of the quickest ways to get into consumer debt. Instead, this is a good way to instill financial discipline by teaching them the credit card statement cycle, credit limit, bill payment due date, and how to navigate online credit card management.

Savings and investments

Consider teaching children about saving for the future at an early age. When they come into sums of money through birthdays, holidays, or part-time jobs, encourage them to set aside a portion of it to save for a future purchase. When they reach a certain age, consider even opening a bank account with them before they turn18, so that they are familiar with how to manage and track their money.

Bring up the topic of investments at an early age. Inform them of the concepts of long-term returns, time in market versus timing the market, the power of compound interest, and tax-advantaged retirement accounts. Instilling excitement and a high level of engagement will encourage them to invest early, which will serve them well in the long run.

Next steps

In conclusion, holding a seminar for personal finances 101 for your clients’ children is an excellent way to prepare them with the basic tools and foundation necessary for a successful financial future. It is a rewarding way to further serve your clients and play a role in their children’s future and interests.

Looking for additional resources? Consider Intuit for Education, a free curriculum designed to help students build the skills needed to make financial decisions. It is a comprehensive and flexible curriculum that comes with tools and resources that help bring these concepts to life in the classroom for educators and students. Additional questions about Intuit for Education can be found at the FAQs.