7 Finance Lessons Your Daughters Need to Learn
How parents can teach their kids responsible money habits
Money has historically been a delicate and contentious topic in many households. As a consequence, young adults routinely make financial mistakes.
One thing is certain - we all learn from mistakes. As Bram Stoker said, “We learn from failure, not from success!”
So today, let's go over some common money mistakes and must-know financial concepts that parents can teach their daughters, so they don't make those same mistakes.
Urmi Hossain
1. Money should be seen as a tool for a better quality of life
As we have discussed in our previous blogs, parents should have open conversations with their children about money. Never hesitate to initiate a fun money conversation whether you’re at the dinner table, hanging out after work, or running errands on the weekend.
Stress the importance of money management to you daughters during every activity that involves money. Tell your children that money is a tool that will give them freedom and a better life. On the other hand, money can also cause financial stress. Financial stress is caused by frivolous spending, low incomes, and careless financial decisions.
Prevent these financial hurdles by engaging in open and regular communication with your daughters while demonstrating how money is a tool for a better lifestyle. Remember, what you teach your daughters today about money are lessons that they will carry forever.
2. Teach your kids about the nitty-gritty of money management
I didn't know anything about money until I turned 19 and got my first part-time job. It was the first time I saw what earning money really meant, how going to the bank really worked, and even knowing the difference between debit and credit cards.
I come from a culture where many topics - including money - are pretty much taboo. Men usually handle the finances at home, which is why it took me so long to finally learn about money. It had never even occurred to me to ask my parents about money, either out of fear or because women were not supposed to handle finances at home.
Looking back on my experience, I can tell you that we need to teach our daughters even the simple money management tasks we often take for granted. Talk to them about anything like reviewing the grocery receipts, opening a bank account, paying online bills, and the difference between a credit card and a debit card.
Getting these basic, everyday skills mastered is incredibly important and will help your daughters become financially independent.
3. Understanding Bad Debt vs. Good Debt
Debt can quickly become our enemy. Think about student loans, car loans, and credit card debt! These are all pretty bad debts to have, especially if they have been outstanding for a long time. Some businesses even go bankrupt if they can't fulfill their financial obligations.
However, not all debt is bad. Some debt can actually help you become richer. As the financial guru Robert Kiyosaki said, “Good debt is when a person borrows to turn it into an income-generating asset.”
For instance, you can borrow money to invest in an asset like a house that you rent out for a profit. In essence, bad debt takes money out of your pockets while good debt brings cash to your pockets.
Robert Kiyosaki also teaches the concept of the 90/10 Rule where 10% of borrowers use debt to get richer while the 90% use it to get poorer. Don't be that 90%.
4. Teach your daughters how to look out for fraud
Like adults, children are at risk of fraud, identity theft, and online scams. It’s no surprise that children can fall victim to fraudsters when they have early access to the internet and mobile devices. Parents need to teach their daughters to detect the various red flags that indicate fraud.
Here are a few tips for helping your kids avoid fraud:
- Have strong passwords for online accounts
- Avoid sharing too much personal information online
- Do not click on suspicious links or attachments in messages
- Never click on messages that say things like, “Click here now, you will get rich faster!”
It may be a good idea to sit down with your daughters and go through a few real-life examples of online scams they may be vulnerable to. Providing realistic examples will help your daughters detect scammers and keep their personal information safe.
5. Explain why insurance coverage is important
You can get insurance on pretty much everything today - your house, your life, your cats - literally everything.
But why is insurance so important?
Insurance offers protection and peace of mind in the most important areas of our lives. Although these are probably things they won’t need to worry about at the moment, talking about insurance from an early age will prepare your daughters for the real world.
For example, your daughters may want to understand health insurance coverage while they’re looking for a job. Some companies offer dental and medical coverage insurance, but insurance plans aren’t the same across every company. Your daughters will be able to choose the company with the best insurance plan if they already know about the benefits their employers can offer and how to take advantage of them.
6. Talk about pensions now so your daughters can be financially secure later
Sometimes I (Urmi) wish that someone taught me about pensions early enough so I could maybe be rich by now.
However, young adults nowadays disregard the importance of investing in their pensions either because they lack financial understanding or they don’t care about their pensions at all.
Children should learn the concepts of pensions and compound interest early enough so they can start investing and earning as much interest as possible. You can even talk to your daughters about the concept of employer contributions, which is something that they’re unlikely to learn about in school. Employer contributions are essentially free money from an employer that you enjoy once you start working full-time.
Teaching your daughters about pensions and compound interest now will ensure they have comfortable and financially secure futures.
7. Taxes are unavoidable but manageable
Taxes are definitely our enemy, and pretty much anything is taxed.
When we buy something at the store, we get taxed. Our paychecks are taxed. Our investments are taxed on capital gains or interest/dividend income.
There is no way to avoid paying taxes. However, there are ways to reduce our tax payments through tax-efficient investments and professional financial advice.
First, show your daughters how everything they buy is taxed - from clothes to groceries. Tell them why the government taxes citizens and how the money is used for the economy. When they are old enough to start investing, they can seek out a professional to get more in-depth advice for managing their taxes.
“Most people go along with the crowd. They do things because everybody else does it.”
― Robert Kiyosaki
Bernita Bailey
These are all very important financial lessons. I want to expand on lesson 6 because it is such an important lesson. Saving a little money over a long period of time can add up to a lot of money! That is precisely what a retirement plan such as a pension, 401k, IRA plan, or a non-retirement consistent monthly savings plan allows you to do. These types of savings plans also allow your interest to compound over time. What is compound interest, you ask? Compound interest is the interest you earn on both your original money and the interest you keep accumulating. WHAT??? Ok, here is an example, if you have $100 and earn 5% interest each year, you will have $105 at the end of the 1st year ($100 x 5% = $5 + your original money of $100 = $105), at the end of the 2nd year you will have $110.25 ($105 x 5% = $5.25 + $105 your money from the the end of year 1= $110.25) Interest on top of interest plus your original money – got it!
The earlier you start saving, the better! For example, if you saved $250 per month over 20 years, earning a 5% return, you will have $102,758. Now let’s use that same time and return but increase the amount to $500 per month. You would have $205,517. One more time, saving $1,000 per month over 20 years at 5% would equal $411,034. To all the kids and young adults reading this who think 20 years is a long time, just ask your parents. They will tell you it goes by fast. I wish I could go back and tell my 20-year-old self to start a consistent savings plan now. I can’t reiterate enough how important it is to teach your kids early about saving money. This important lesson will help you and your kids achieve financial security and financial freedom.
About the authors: Bernita Bailey is the Truist Suburban Maryland Market President. Urmi Hossain is a Pink Space Theory volunteer and founder of Savvy & Smart Her. Urmi was born and raised in Italy, in a South Asian household ( Bangladesh).
