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When it came to matters of money, my mother wore the proverbial pants in the family. A strong willed single parent and the eldest child of nine siblings, she was the breadwinner who had to make dollars and cents out of it all just to keep clothes on our back and a roof over our heads.
But like every teenage daughter in the 80’s I wanted it all, especially my MTV, Vidal Sassoon hair, and first pair of Calvins so I too could look, sound, and act just like Brooke Shields in the commercials. “Tina, money doesn’t grow on trees,” was the first lesson I learned growing up in the school of hard knocks. The second was to get a job and go to work at the ripe old age of 11 as a mother’s helper; a popular, well-known practice of child slave labor at the time between mothers and daughters.
Unbeknownst to me, there was a scientific method to my upbringing especially in the repetitive use of the word NO. The combination of this annoying sound –one consonant and one vowel–used daily and repeatedly, provided the foundational elements of an incredibly strong work ethic, a few good pairs of Jordache jeans, and even some lifelong money lessons for my own kids. While their teenage wants were quite different than mine, I too preached the gospel of the word NO a thousand times as to hear my mother’s voice reverberate inside my head. I’m sure the parents reading this now did exactly the same thing. How many requests for a new iPhone can one have? Apparently many.
So being a mother in the money business with two working, successful college-grad kids I’m often asked, “What should I be teaching my daughter about money?” While it is true both my daughter and son had the luxury of being raised by two loving helicopter parents, here’s my own take on what I call Daughters and Sense, 10 money lessons worth passing down (with a shout-out to my mom of course):
1. Practice the art of delayed gratification.
The saying good things come to those who wait is true. Delayed gratification is about learning how to be patient when there is an insatiable need for stuff that usually falls into the category of non-necessities. Rather than using emotion and acting upon impulse, the timing for purchases should be based on logic: 1. Can I afford it and B. Do I really need it? Although the concept sounds pretty easy, in practice it is very hard to do, especially with a fashionista teenage daughter. Mastering the art of delayed gratification takes time. I have found starting small and with a shorter time horizon helps, a few days vs a few weeks is a much easier challenge. In the end, time actually works to our advantage and we learn to appreciate the things we work and wait for.
2. Go to work.
Ok maybe not at the age of 11 but with a few simple chores or a part-time job. Getting that first paycheck in your hand begins to teach the value of a dollar and the effect of taxes and deductions on take-home pay. In addition, the principles of budgeting are introduced naturally as waiting between paycheck to paycheck can feel like an eternity. Having a job is great but the upside of being able to buy the things you want, on your own, is a lesson all girls must learn if they are to grow up to be responsible, self-sufficient women.
3. Begin investing in your 20’s.
Encourage your daughter(s) to get comfortable with investments by creating a small individual trading account in her 20’s. Let her learn about financial markets, and investment vehicles such as stocks, bonds, exchange traded funds, mutual funds, and different indexes such as the S&P 500 and Dow Jones Industrial Average. Understanding the law of compound interest and how a few dollars today can turn into big money over the course of a lifetime is one of the most important principles in finance we can pass down. Learning these concepts early is the secret to money mastery later in life, when the values are much larger and therefore the risks of making an ill-informed decision. Related Compound Interest - A Girl's Best Friend
4. Set up a checking account and use automatic deposit.
Do not, I repeat, do not let your daughter cash her paycheck! This is a surefire way to ensure that every penny is spent and none saved. Furthermore, it encourages frivolous spending on the non-essentials like clothes, make-up, shoes, dining out, and recreation which when added together, can exhaust a wallet full of cash in a heartbeat. In order for saving to be successful with young girls, it must be habitual as well as automated and online. They might not check their balances as much as Facebook but they will begin to take pride having their own account and develop personal money management skills such as saving, reconciling a checkbook, and even using online bill pay for some of their expenses.
5. If your company offers a match, take it and run!
Many companies still sponsor a retirement plan at work called a 401(k) account. Educational institutions have similar plans called 403(b) and 457 that are funded with pre-taxed (no taxes taken out) dollars. Some employers match part or all of their employees’ retirement account contributions, 3 percent for example, which is basically freeee money! Explain to your daughter(s) that not taking advantage of an employer 401(k) match can wind up costing her thousands of dollars of free money that could be building tax-free in a retirement account. Furthermore, 401(k) contributions will lower her wages subject to federal income tax, reducing the overall tax liability owed when she files her annual income tax return. You can also just say, honey, a match is a no brainer. Do it or else.