fi nancialforum Lessons for Kids P
Learn to Save For tips on how to save more money, read “Mon- ey-Saving Habits to Start Now” at
www.moaa.org/ moneysaving.
46 MILITARY OFFICER APRIL 2016
In recognition of the Month of the Military Child, Lt. Col. Shane Ostrom, USAF (Ret), CFP®, highlights 10 fi nancial lessons to share with your children or grandchildren.
Parents sometimes ask me about money lessons they and others can share with children. Since MOAA em- ploys a number of recent college gradu- ates, I asked these staff members what they wish they had known about money back in the day. Keep the topics and lessons age-specifi c. Teach them: “A part of all you earn is yours to keep” (from The Richest Man in Babylon). Shaving off a small portion of pay (say, 10 percent) won’t impact their spending that much. If they are working, put a small por- tion in a retirement account. The earlier they invest now, the sooner they can stop working later. Show them the power of compounded money. At fi rst, it might seem it will take forever to build wealth, but like a snowball rolling down the mountainside, it gets large quickly. For example, starting at age 25 with $200 a month will equal $700,000 (at an 8-percent annual average return) at age 65. In comparison, with the same an- nual return, starting at age 35 with $200 a month will equal $300,000 at age 65. Build a credit record. Without it, someone will have to cosign for them later, and they could be behind as young adults. Make sure the child pays off the credit card. They need to learn to live within their means. Credit is not a substitute for income or spending beyond their income. This goes for housing, too. Don’t be house poor.
Don’t go overboard with college loans. Keep a cap on college expenses by fi nd- ing alternatives to maintain a realistic budget. A massive debt at graduation means your child can’t make the pay- ments, or they live at home, or you own the debt. Have a budget or create a money fl ow chart — money in, money out. For example: allocation of net income
= 10-percent minimum investment in you (short- and long-term); 40-percent hous- ing and consumer debt (housing = 25-30 percent and consumer debt = goal of zero); and 50-percent living expenses. How should you pay off debts? Make consumer debt a priority. Choose one of the following payoff plans: 1. The quick victory. Pay off the smaller
debts fi rst. You have to make at least mini- mum payments on all debts. Put an extra amount toward the smallest debt fi rst. 2. The interest rate on the debt repre- sents a negative return on your money. Stack the debts, highest interest rate on top, lowest rate on the bottom. The fi nal idea is for the child: You can do this yourself. Resources abound online, in- cluding at
www.moaa.org/fi nancialcenter. Those are some great ideas.
MO
— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit
www.moaa.org/fi nancialcenter for other re- sources. Email specifi c benefi t and fi nance inqui- ries to
beninfo@moaa.org.
PHOTO: SEAN SHANAHAN
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