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Retired Military Finances 301: Generational Wealth. Teaching About the 3 Things You Can Do With Money Thumbnail

Retired Military Finances 301: Generational Wealth. Teaching About the 3 Things You Can Do With Money

College Planning Managing Your Finances

By Joseph Brown, PhD, CFP®

There are many famous money influencers who talk about the three things you can do with money:

Save it.

Spend it.

Give it away.

But the question I often think about is how we pass this on to our children and teach them about how to properly handle money and teach them the power of each of these three things?

I like to think of it in three phases, early childhood (0-14), the first job years (15-18), and college years (19-22). Let’s talk about each of those individually.

Early Childhood Years.

At this age children often do not have a lot of money or make a lot of money. During these years they may get gifts from family and friends of family though. This is when you can begin to introduce the save it, spend it, give it away philosophy. For instance, my children’s school would often have fund raisers such as “dress down” days that would go to support a charity. Or a student led project to benefit the community. These are the perfect “give it away” places for children in this area. If you can pair it with some volunteering to help with that project that is even better yet because it will help them, see the tangible effects of their gifts.

Save it is easy at this point by having them put a percentage of the money away into either a savings account or a 529 account. I generally prefer the 529 because you can help them see the money grow. But a savings account is also great, and you can use that around a milestone in their life such as beginning to drive. You could let them know that is money to help them buy a car, and if you are able, you could even offer to “match” the money they save!

Spend it is the easiest of all. When there are extra things that they want that are outside what you will normally get them, simply ask them if they want to spend their own money on it.

The First Job Years.

The only change here is encouraging them to start a ROTH IRA account. Since they have earned income, they can now contribute up to their entire earned income into a ROTH IRA up to the annual contribution limit (currently $7,000). This is super powerful due to compound interest, the eighth wonder of the world according to Albert Einstein! Here again you, or other relatives, can help them out and match the money put in up to the full amount of earned income they have. For instance, if they made $2,000 last year and want to save 25% ($500) of their income, you could match it at a rate of up to 3:1 meaning you put in $1,500 and they save $500 for a total of $2,000. For illustration purposes at a rate of return of 10% each dollar they put in between age 15 and 18 would be worth just over $100 at age 65. This means that $2,000/yr for their four years of high school would end up being worth about $818,649 at age 65.  

College Years.

 Again, everything in the previous two sections continues in the college years but you now also have the added expenses associated with college. College choice is the number one predictor of college cost. It pays to do your research and due diligence when applying to and choosing a college and negotiating the price of the college.  Your child can be successful at any college and what college you choose is a financial decision – for you and them!  This is an area that I enjoy helping the families we serve with. There are ways to maximize your benefits and truly get the most out of it. The best piece of advice I can give though is to have honest discussions with your children about how much you can help and set a budget. Also make sure that you cover that school is a “job” for them and while they should enjoy it, they also need to hold up their part of the bargain.

More is Caught than Taught!

Finally, remember that your children will see what you are doing with your own money, and learn the good habits you portray to them and adding a little bit of intentionality on how you talk about it and teach them about it can really complete that education you provide them. This means that before you do any of the extras for the children, such as matching, you should ensure that you are meeting all your needs – present and future!

Military Finances are Different.

Teaching your children about money management is especially important for military families, given the unique financial aspects of military life. As an Active or Retired Senior Military Officer or NCO, you have access to special savings plans, tax benefits, and educational assistance programs that can significantly impact your family's financial future. To ensure you're making the most of these opportunities while educating your children about money, it's essential to work with a financial planner who specializes in military finances. If you'd like to discover how we can help you create a tailored financial education strategy for your family that leverages your military benefits, use the button below to schedule a free initial consultation.

If you found this article useful, you might like the following blog posts:

Retired Military Finances 301: Generational Wealth

VA Education Benefits for Spouses and Kids

When is Junior a Dependent?

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