Introduction & Hosts

Madison: Hello, everyone, and welcome to Not Just Numbers, Honest Conversations with a Financial Advisor and Lawyer. I am Madison Demora, and I’m here with Mike Garry. Mike is a financial advisor and a CFP practitioner and the founder and the CEO of Yardley Wealth Management. He is also an estate planning lawyer, and his law firm is Yardley Estate Planning. Hello, everyone, and welcome. Today we’re tackling a question that comes up for so many families, how do you teach teens and young adults to make confident money decisions before the stakes are high? To walk us through this, I’m joined by two of our financial advisors, Mike and Maureen. They work closely with families on exactly these kinds of conversations, helping parents not just talk about money with their kids, but actually create real world experiences that sticks. I’ll let the two of them take it from here as they share what they’re seeing with clients and the strategies that can make a lasting impact. Hi Mike and Mo. How are you guys?

Mike: Good. How are you? Mo, you ready for this?

Maureen: Yeah, I’m ready. This is one of my favorite topics.

Mike: Yeah, it’ll be even more fun for you when your girl’s a little bit older.

Maureen: Yeah, I don’t have to worry. I mean, Millie starts shopping and she’s only 18 months, but luckily there’s no money in that purse yet.

The College Spending Wake-Up Call

Mike: So, going over a client call we had in the fall. Daughter had started college and in six weeks burned through an entire semester’s worth of spending money. Six weeks. And mom’s first instinct was to just refill the account.

Maureen: Of course she does. That’s what we want to do. When our children have a problem, they run out of cash, we want to just jump in and fix it right away. It’s scary.

Mike: Right. It’s easy. Right. Because if we’re in a position to easily solve our child’s problem, a lot of times it’s the natural instinct to do that. But, you know, actually, it could be the most valuable financial lesson her daughter ever gets, and it’s going to cost her nothing extra. She would just have to be willing to let her daughter be uncomfortable for a little while. It’s not always easy.

Maureen: Yeah. And that’s what we want to talk about today is how do we teach our teens and young adults about making smart money decisions before it really matters and they’re on their own. So, you know, the stakes are going to get real soon and teaching them in early teens and in college is a perfect place to do that.

It’s Not a Knowledge Problem — It’s About Real Consequences

Mike: Yep. The families who handle it best aren’t the ones who lecture their kids about compound interest at the dinner table. You know, sadly, because I did. They’re the ones who created situations where the kids actually had to make choices with real consequences.

Maureen: Yeah. So, again, that brings up a great point. It’s not just about educating them. You can talk about credit cards, compound interest, checking accounts, but you actually have to give them the experience so that they know what it feels like. So, they know what a budget is and they can explain it, but they’re not set just with that. Right?

Mike: Right. So, it’s not a knowledge problem. Right. Most teens can actually explain things like what a 401k is or what interest is but knowing what something is and then doing it are completely different.

Maureen: Exactly. So how do we kind of start with that? When you think about it, it’s having a limited amount and being forced to make decisions with that.

Mike: Right, right. So, the idea is when they’re younger, the decisions don’t have to be catastrophic. Right. And so, you know, it’s not a devastating loss if your kid has to buy less clothes in their freshman year of college. Right. It’s uncomfortable, but not ruinous. But if parents bail them out every time it gets uncomfortable, the lesson just evaporates.

Maureen: Exactly. So, we want to do it again when there’s consequences, but the stakes aren’t real yet. Like they’re not trying to pay electric bill for their new house and don’t have the funds.

Mike: Yeah. So, what we tell clients all the time, the most expensive thing you could do is make your kids money problems painless. Because then they never learn the lesson and then they don’t avoid the pain.

Step One: The Fixed Shopping Budget

Maureen: So, let’s take step one. Where do we start with this? You know, when they’re in their early teens, sometimes a fixed shopping budget is a great way to start.

Mike: Could you.. How do you explain it to clients?

Maureen: Yeah. So, it’s simple. You’re going to back to school shopping, and they say, hey, mom and dad, I’m gonna go on my own now. Right. They’re able to drive and go out. Instead of saying, here’s my credit card, you say, hey, here’s a certain amount of money and anything extra you get to keep.

Mike: Oh, suddenly that whole dynamic changes. I like that.

Maureen: Yeah. So, you know, you’re starting to think about, do I want these jeans or are these ones on sale? And they’ll do just the same job. Because then I’ll get an extra $20 to spend on whatever else I want.

Mike: I like that. It’s opportunity cost made real. The downside of that is I have one daughter who would have never bought clothes, but she would have accumulated the 300 times every year.

Maureen: Well, maybe she didn’t need it. And that’s a great lesson too.

Mike: Right. So, the critical thing I like is that you emphasize with parents, is that when the money runs out, it runs out. You can’t pull out the credit card. Right. Because then the second you do that, the whole collapses.

Maureen: Correct. But again, that’s only for one time. Right. That’s a one-time life lesson, but a good one to start early when they’re in, you know, 13, 14 to 16. But you know, we want to keep reinforcing it so, you know, we look a little broader. Like a monthly budget or even an annual budget for the next step of teaching them real life lessons.

Expanding to a Monthly or Annual Budget

Mike: Yeah. So, do you look at monthly longer? Like what do you look at? Like, I’ve had clients put their teenager in charge of their own clothing budget for a year. Everything, everyday clothes, shoes, athletic stuff, homecoming outfit, whatever. Here’s the total amount, make it work. You know, I don’t know if that works.

Maureen: Yeah, for college students it’s a great spot to start because a lot of times, they have a summer internship, and they start to make some real cash or even just a summer job. So, it’s like, hey, you’ve made X amount over this summer you’re not going to really have another job because you’ll be focused on your studies, so how are we going to make that money stretch throughout the year? And you know, when it comes time, summer starts rolling around, you know, after the holiday season, maybe even before that in January, they start to notice their account gets a little bit low and they really want to buy a new pair of sneakers. Well, guess what? You’re going to remember to save a little more money next time. So, it’s a good life lesson, like you said, don’t bail them out. So now we’ve extended it from a one-day shopping budget to an annual budget based around, hey, you’ve earned money in the summer, let’s learn how to save it so it extends throughout the whole year.

Mike: I love that. I mean, there’s so many different lessons in that. Right. Like, the whole thing of making sure it lasts for a year, because when you’re 16 or 20, a year is forever. It’s just a big, long amount of time. And you know, different things are pretty expensive. Like that homecoming dress could be pretty pricey. And so, like trying to figure out how to make stuff last, but still do the things you want to do, it’s a great life lesson. And it’s stuff that like the adults do, or most adults should do most of the time, but don’t always do, so it’s good. I like the way that you do that, map that out for a year.

Modeling Good Money Behavior at Home

Maureen: Yeah. And of course, you’re trying to give them the tools and the knowledge when you’re at home. So, having those conversations in front of them so saying, hey, yeah, we really want to go on this vacation, but should we go on this vacation or this one? We can’t do both. Or should we buy this tv or should we look to invest, in, you know, a new car? Helping them see that you guys make the same decisions really just brings it back home and makes it real.

Mike: Right. And I like the idea of, you know, the amount that a child or a young adult in college has to plan with is relatively modest. Right. It’s not, you know, and so like if you get practice on those smaller things then you know, fast forward 10 years and maybe, you know, they’re thoughtful with wedding spending or planning and they don’t take on a mortgage or rent that they can’t afford. You know, like it’s all they’re good lessons, I think.

Maureen: Yeah. We just hope if we’re paying for those weddings that they’re thinking about that that way.

Mike: I got one done.

Maureen: Yeah. So. And I think, I think you guys did okay, right?

Mike: I think it was okay.

Teaching Investing: The Roth IRA Strategy

Maureen: Yeah. So that comes to, you know, just budgeting. But there’s even more lessons we can teach. We talked about that summer job. So, investing. What are some ways that we teach our clients to invest, Mike. Our clients’ kids, I should say. Excuse me.

Mike: Yeah, I think one of my favorites, you know, is when you’re, when your child turns 18 and some earned Income. Summer job, part time job, whatever, help them open a Roth IRA.

Maureen: Yeah, it’s a great resource as you say, you know, put in the funds when they have such a low tax bracket that, you know, they’re getting a great advantage there and it grows tax free and taken out tax free. Even, you know, $1,000 a year at 18 at 8% is almost a half million by 65. It’s real numbers.

Mike: Yep. You know, and the investing for retirement at 18 isn’t really, that’s kind of beside the point. The point is that you could put money in there and it can grow and they could see how it works and it compounds and hopefully just a couple years could get somebody into, you know, thinking about how they’re going to add to that overtime. And it could get fun.

Maureen: Yeah, I know one thing that you’ve talked to with clients too is making it more advantageous by the parent saying they’ll match their contribution. Right. So hey, you know, if your daughter puts in $500, the parent then will match 500 and you know, it becomes like a nice little bonus there for them. And you’re also helping them out too.

Mike: Yeah, it’s a nice life lesson. And you know, it’s kind of like, you know, when they get their job and they have a 401k or 403b that, you know, to make sure if they put in money, you know, the employer will generally match some part of it. And you know, it’s important lesson to learn that you certainly want to do at least what, whatever the free match is.

What Happens When Markets Go Down

Mike: But what do you do when things go downhill? Like what, what if your child starts investing and you know, it’s, I don’t know, the fall of 2008 or March 2000. Are there any lessons learned there, you think?

Maureen: I mean, of course there’s lessons learned there. It’s that self-discipline. Right. Is not to panic when markets go down because they’ll go up and you have a long time horizon for those funds. So again, the first way to do it with starting out with smaller amounts of money. So, when it becomes real, like you said, that large 401k that’s grown that they know, hey, done this before and don’t panic. But again, starting, you know, young and getting that ingrained into your memories is a good way to learn about it.

Mike: Yeah. If they see the thousand dollars go down to 700 and don’t panic and you know, or maybe invest more then, you know, in the future if, 100,000 goes to 70,000 or a million goes to 700,000, you know, they’ve learned the lesson and don’t make mistakes that they’ll regret. All right, so let’s talk about college transition. Because a lot of this comes together or falls apart at that time.

The College Transition: Where It All Comes Together or Falls Apart

Maureen: Yeah. There’s a lot of emotion in the household when a child goes away to college. You know, it’s the first time they’re really living away from home, for extended period of time. So, you can really kind of lose the lesson here for the lack of a better term.

Having the College Cost Conversation Early

Mike: Yeah. And, you know, the money conversation, like about college has to happen really before you start touring. Because if your child makes that emotional connection to a college, it is hard. You know, Amy really loved the University of Richmond, and we had a long conversation about that. But when we had that conversation, she wasn’t emotionally invested yet. Like she liked it. We did have a tour, and it was like Disneyland. But, you know, we had a conversation about the financial aspects, and she wound up going to Penn State. And she couldn’t have liked it more. She bleeds blue and white. But you know, a 17- or 18-year-old is not going to know these financial things. They really need to rely on their parents or their parents’ financial advisor to have these conversations.

Maureen: Yeah. And it’s a huge disadvantage to your child not to have them. If they go to a college that’s really expensive and they come out with all student loan debt, it’s going to be a surprise to them and set them back in many other ways. So really talking to them and showing them, hey, this is what it looks like if you go to this college, this is how much you’ll get for your room and board, for food and everything. They really set them up to start thinking about these choices have very large consequences and they can have a way better experience if you think about them and talk about them.

Putting College Costs Into Real Terms

Mike: I think the thing that worked with Amy, and it may or may not work with other high school seniors, is that I put it into real terms because dollars don’t really mean anything. But what I said is, okay, if you want to go into school and you want to be a high school English teacher, sounds great. What that means is that the salary you’d expect to pay and the loans you have to pay for the 10 years that you’d be paying those loans back, you’re going to have a hard time saving anything for college or not or like to get your own place. You’ll be living in your parents’ basement, and you’re not going to be able to really afford to travel. So, if you want to spend your twenties that way, have at it. It’s a great place. I hope you enjoy it. But there’s real consequences to spending that much on your education.

Maureen: Yeah. And then once you set that context, hopefully they make the right choice.

Setting Up a Budget and Tracking Tools Before They Leave

Maureen: The other step that parents have to remember to do is talk about that budget again before they leave because again, you’re very distracted freshman year of college. So, say, hey, you have a budget, let’s talk about how to track it, whether it’s an app or spreadsheet, and set them up for success. There are multiple ways.

Mike: Right. That’s the other part. Right. That the budget and you know, talk to things about how everything is, digital, you know, like, I don’t know, I don’t think my dad gave me any cash when I went to college and I commuted. But now, like you give a kid a $20 bill or $100 bill, they might not know what it is, but you know, they know what Venmo is.

Venmo, Cash Apps, and the Slippery Slope

Maureen: Yeah. And Venmo, that’s a great point. Venmo, the cash app, even just some of the credit cards, those things they allow you to borrow from them and it’s a very slippery slope. So you have access to all of these things as an 18 year old and just being mindful, understanding your budget, understanding how those items work and how lending works, you know, you’re really again, teaching them a life lesson at a time that hopefully will carry through their entire life and set them up for success.

Mike: Always the hope. So, we’ve been talking about these specific tactics, but the bigger picture here is really about a shift. Right. And the parents’ role over time.

The Shifting Role of Parents Over Time

Maureen: Yeah, exactly. You know, basically from them, you being their decision maker to sort of coaching them and giving them the, you know, encouragement to do and make the right choices.

Mike: Exactly. You know, early on in their early teens, let’s say, yeah, you’re setting tight boundaries and don’t give them a lot of choices, you know, because they’re early teens. But you know, by 17 or 18 maybe you’re more of a sounding board. The guardrails are still there, but there’s a lot more room to move.

Consistent Messaging and Modeling

Maureen: Exactly. And always having consistent message. It’s always easy to, you know, dip or fall in and say here’s an extra 20 or here’s an extra this. But being both parents, being on the same page and having a consistent message over the time period will really set that foundation.

Mike: Yeah. And you know, I think that what they say the modeling matters. Right. Like, you know, we don’t, we can say a lot of stuff, but kids are smart. I mean they pay attention, they know what’s happening, they know what’s doing. And I think that sometimes as parents we underestimate what they’re actually paying attention to and what’s going on. And I get things said to me all the time now, by my now adult daughters of things that I said when they were younger, that they clearly were paying attention. Even if they acted as if they weren’t paying attention, they were.

Maureen: They are. Listening all the time. You’re the best teachers, right?

Mike: Yeah. And a lot of the lessons are not intentional. You know, you do what you do and they take the lessons from it and hopefully they get better and they make better decisions than you do and, and they learn from it. It’s not an easy job being a parent.

Final Thoughts

Maureen: Definitely not. But just a reminder, you know, when you’re having these conversations, you don’t have to accomplish your child to be a financial expert in day one. The idea is to start small, start teaching lessons when you can. And you know, one fixed budget, then one annual budget, then maybe the Roth investment account and you just hopefully they take off from there.

Mike: Yep. And if you want help structuring those conversations, or if you’re thinking about things like the Roth IRA strategy or how to set up the right framework for your family, that’s exactly the kind of thing that we help with.

Maureen: Yeah. Feel free to reach out and we’ll have those conversations.

Mike: Yeah. Thanks everybody for listening.

Maureen: Thank you.

Closing & Contact Information

Madison: For more information on Yardley Wealth Management or Yardley Estate Planning, you could visit our websites at Yardley wealth.net and yardleyestate.net. You can also follow us on socials at Yardley Wealth Management. Don’t forget to subscribe to our YouTube channel. This podcast has been produced by Madison Demora and Mike Garry with technical and artistic help from Poe Productions.