Seventy-eight percent of millennials and Gen Zers are worried about their ability to achieve two crucial American dream milestones: financial freedom and owning a home.
Financial freedom looks different for everyone, according to a Chase survey. For 48% of millennials and Gen Zers, freedom is being debt-free. Another 41% value the ability to travel in their pursuit of freedom.
Are these generations doomed and at the mercy of today’s economic turmoil? Or have they set themselves up for failure by not understanding the basic principles of financial management?
Smart Financial Habits Start in Childhood
As a millennial dad who has gradually built my net worth to over $1 million, I believe in the power of setting up our younger generations to achieve financial freedom. Regardless of the cards each generation and economy is dealt, good financial habits start in childhood and can set the foundation for a successful financial future.
It took having kids and office jobs for my wife and I to realize that we needed to make drastic lifestyle changes to save money and build the wealth we wanted. We changed our habits from living paycheck to paycheck to slowly building our nest egg.
For us, promoting financial literacy will ensure that our kids can build their wealth. They’ll also be able to make intelligent choices regarding any generational wealth we can pass down.
1. Don’t Take on Consumer Debt You Can’t Afford
Some debt may be necessary when making significant life investments, such as education or owning a home. However, taking on consumer debt for items beyond our means is never a good idea.
Have your child discuss and answer these questions as they come up:
“Will this education help me land a job that covers my bills and pays my loans back?” Help them be realistic with career choices and education when the time comes.“Should I take out a home mortgage over 28% of my monthly gross income?” Lenders recommend keeping your debts under this threshold to reduce your debt-to-income ratio.“Do I need the latest car model when my current vehicle is functional and paid off?” Cars are often considered a worthwhile reason for accumulating debt, but not if the cost exceeds your budget or you could have repaired your current vehicle.
Discussing these big-picture questions with a lens appropriate for your child’s understanding helps them understand the importance of money choices early on. This keeps them from being a reckless young adult with credit card spending or debt accumulation that quickly gets out of control and limits their future financial choices.
2. Live Within Your Means
Spending on unnecessary items or overspending can quickly spiral out of control and hinder financial freedom. In a culture with deep-seated consumerism ideals, it’s easy to fall into the trap of keeping up with others’ material possessions or lifestyles.
A 2023 Experian report shows that consumer debt continues to rise yearly, strongly driven by credit card expenditure. As parents, we must teach our children to avoid the pitfalls of consumer debt by living within their means and avoiding impulse purchases.
One option that has worked well for our family is setting a monthly budget with our kids. We involve them in creating the budget, discussing expenses and savings goals, and holding each other accountable. This not only helped our kids understand the value of money but also allowed them to develop responsible, age-appropriate spending habits.
3. Save Early and Often
Saving early and investing patiently is a crucial step towards achieving financial freedom. The power of compound interest cannot be underestimated. Teach your kids that the earlier they start saving, the more time their money has to grow.
Drawing out how compound interest works is helpful, even for our younger kids. That way, they understand why we put most of their monetary gifts in exchange-traded funds (EFTs) or bonds. If that’s too boring for their liking, help them understand via classic games like Monopoly that purchases, investments, and rent/dividends can be leveraged to derive more significant gains.
Instilling good saving habits will help our kids build the discipline needed for long-term financial success. Encourage them to set short and long-term goals for their savings, such as buying a new bike or saving up for college tuition.
4. Focus on Your Own Goals
Focusing on our own financial goals is essential to prevent getting caught in the comparison game and trying to keep up with others’ lifestyles. Whether that means paying off debt, saving for a down payment on a house, or building an emergency fund, each person’s financial journey is unique.
Teaching our children to prioritize their goals and not be influenced by others sets them up for success. It’s also important to remind them that success is not always about how much money we have but how happy and fulfilled we are with our financial choices. Our current finances allow me to spend more time with my family, be a better husband and dad, and pursue self-development interests, which I find invaluable.
These are just a few lessons I plan to pass down to my children regarding achieving financial freedom. By instilling these values in our kids at a young age, we can set them up for a secure financial future and help them break the cycle of debt and consumerism. After all, true wealth is built not just by how much money we have but also by how wisely we use it.
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