We’ve all heard the expression, “Love makes the world go round, but money greases the wheels.” While loving your children is your most critical parental imperative, teaching financial responsibility is a close second. Read on to learn three critical wealth management lessons which will help lay the foundation for a financially independent future.

1. Understand Cash Flow

Many teens and new college students have little to no understanding of their basic spending. While this may seem unimportant when they’re living under your roof, it is a recipe for disaster in the real world. Sit down with your teen to go over the monthly outflow of all recurring financial commitments—from cell phone bills to car payments, insurance and gas (even if these are things you pay for); likely, your child will be shocked by the sum of these daily living expenses. This will also help your child understand the impact of both day-to-day incidentals and major purchases.

This is also an optimal time to discuss the importance of saving—from building an investment portfolio to planning for graduate school. Many user-friendly software programs deliver a clear financial picture while helping with finance tracking. Additionally, an investment advisor can offer valuable insights into wealth creation and management. 

2. Practice Credit Caution

While credit may be advantageous when wisely used, it can be catastrophic in the wrong hands. Many young adults are easily deceived by the brutal one-two punch of easily accessible credit and the temptation of instant gratification offered by low introductory rates and zero-down financing offers. Unfortunately, these expenses will catch up with them later. By teaching your kids about the importance of spending within their means and paying off balances every month, you can spare them a harsh lesson in the future.

While mortgages and student loans are more manageable forms of debt, eliminating credit card balances—which can snowball into crippling burdens—takes precedence over everything else.

3. Invest in an IRA

The expression, “Time is money,” holds particularly true when it comes to investing. Opening an IRA is one of the wisest financial moves your child can make: even a small monthly contribution will turn into significant savings over an extended period of time—particularly when you factor in compound interest.

As soon as your child turns 18, encourage him or her to open an IRA. While retirement may be the last thing on your teen’s mind, proper preparations ensure optimal financial outcomes in the future. The fact remains, one of the simplest ways to build wealth is to start saving as early as possible.

Ultimately, while teens and college students may have a million other ways they'd rather spend their time, there's no discussion more important than this one on how to spend and save their money. In the future, they'll reap the benefits of—and maybe even come to appreciate—this critical financial education.

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Gerry Polcari works with individuals, couples and families at GW & Wade, LLC. The information provided above is general in nature and is not intended to represent specific investment or professional advice.  Always consult an attorney or tax professional regarding your specific legal or tax situation. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship. Please see the “Contact Us” section of our website, www.gwwade.com for information on contacting GW & Wade.