As parents, there is never a shortage of things you want to teach your children. Whether imparting wisdom or demonstrating a practical skill, parents have a big responsibility to instruct their sons and daughters. One thing that’s easy to neglect is retirement planning; after all, you probably don’t want to teach your toddler about the merits of an IRA, yet if you wait until he or she is fully grown, it may be too late.
But there is a middle ground here: You can impart some basic retirement planning skills to your kids when they are high school- or college-age. By sowing the right seeds, you can help them develop into some smarter financial decisions later in life.
As for what parents should teach their young adult children about retirement planning, we have a few suggestions.
What to Teach Your Kids About Retirement Planning
Tell them how important it is to start saving early. Encourage your son or daughter to start saving for retirement as soon as they get their first job. Yes, this can be tough: Their salary may be low, and they may have a lot of bills to contend with. But even small savings can help. The important thing is forming healthy financial habits early in life.
Encourage increased savings. Ideally, retirement savings will be about 10 to 15 percent of total income. Again, that may not be possible for someone who’s 22 years old, but you can at least urge your child to gradually increase their savings amount over time, as their salary grows.
Show them the basics. Your son or daughter may have little idea how a retirement savings plan even works. You don’t have to go through all of the nut and bolts, but at least explain some basic concepts. For example, make sure your child knows what target-date funds are and how they are used. You might even ask your financial planner to sit down and help you explain these concepts.
Encourage them to consider company matches. In many cases, it’s wise to use company-sponsored retirement savings plans, especially if the company matches contributions. To not take advantage of this is like leaving money on the table. Make this point to your son or daughter.
Instruct your child on how to make a budget. Retirement planning isn’t just about the future; it’s also about showing some fiscal discipline now! Make sure you teach your offspring how to create a solid household budget—one that enables them to set goals, put money aside, and avoid debt.
These are all invaluable life skills that your child may not be exposed to anywhere else—so it’s up to you to be proactive in teaching them!
To learn more about what you can do to encourage your children in their retirement planning, feel free to reach out to one of our planners. Contact Stonepath Wealth Management at your next convenience.