Kenny Gott is the author of the book Bottom Line Financial Planning: Manage Risk And Fund The Good Life...Your Whole Life, and president of Piatchek & Associates, a family-owned financial services firm serving Springfield since 1972.
What are the top tips for teenagers as they begin to manage their own money?
1) Educate yourself on financial planning basics, especially budget and debt planning, tax management, and investing. There's a ton of information out there, but much of what is online has an agenda and is borderline misinformation, so be a very careful consumer of information.
2) Start an emergency fund. Save a little each paycheck in a savings account separate from your main account. Shoot for $100, then shoot for $500, then shoot for $1,000. The overall goal is to have enough saved in a safe place to get you through three to six months of bills if you suddenly find yourself unemployed as an adult.
3) Start investing up to 10 percent of your earnings through a tax-deferred workplace plan if available - the tax deferral is a huge gift. Use low-cost broad-market index funds. The less you spend on investing costs and fees, the better your investments will perform.
What can parents do to put their kids and teenagers on the path to financial success?
Help them open a bank savings account for emergency savings, and an investment account, and encourage them to get in the habit of contributing to both. (If you're under age 21 in Missouri, you have to have an adult on an investment account.)
Discuss how to manage a budget. Talk about basic expenses versus discretionary expenses, and the need to find balance. Talk about the evil of carrying a credit card balance--using a card is a great way to build your credit score (for better bank loan terms in your future), as long as you pay the card off every single month without fail. Otherwise it can become a destroyer of all joy.
Talk about how to improve your income by actively seeking better employment--in terms of both job satisfaction and pay/benefits--throughout young adulthood.
Is there anything you wish you had known at that age? Why?
I wish I had known how simple investing correctly actually is, compared to the voodoo black art it's portrayed as in popular culture and by so-called investment experts. Investing the correct way can make the difference between struggle and plenty, between an average or below-average lifestyle and the life of your dreams. Money isn't the most important thing in life, not even close, but it sure helps.
I also wish I had known at a younger age about the magic of compound growth. The more you build up in your investment account, the bigger impact new growth has, it's a snowball effect that sneaks up on you in a very nice way. The younger you start, the bigger that snowball gets.
Discuss how to manage a budget; it's not easy. Talk about basic expenses versus discretionary expenses, and the need to find balance.