As parents, we all want our kids to prosper in their lives. And thus, our list of advice for them never ends. With time, trends change, and so do the cheat sheets to success. However, sometimes, some pieces of advice are instrumental and don’t really do anything good for your children. For instance, this financial advice won’t really bring financial prosperity to your children.
Debit Cards are Better
Like all tools, credit cards can be used constructively or irresponsibly. It’s up to your kids to use them wisely. Credit cards aren’t inherently evil; they are merely tools. They can earn you money or cost you money depending on how you use them. But while kids don’t need extraordinary skills to profit from them, they do need the discipline to pay your bill in full every month. If they allow a balance to accumulate, it’s time to hit the pause button on your credit card usage. Advise them – take a pair of scissors to your cards and go back to the drawing board in your budgeting. Brush up on some of the hidden pros and cons of debit cards versus credit cards and practice discipline, whether that means paying your balance in full every month or not using a credit card at all.
Buy a House Soon
We have noticed a lot of parents say that real estate prices rise with time and so, they asked their children not to delay and purchase a house right away. The logic behind this being, the child has no other commitments and thereby, can well pay their EMIs and finish them early. But this plan is quite absurd and let’s tell you how. Firstly, most parents leave their house to their children, and so, they are not going to be later. Secondly, with time and growth in career, they may decide to settle elsewhere, in another state or maybe the country. Thirdly, if children start paying for EMI now, they will have a little surplus by way of savings for the next 10-20 years. Without sufficient savings, how can they fulfill their other important life goals and aims? Purchasing a house before settling into a career is a terribly wrong decision! Instead, you can invest in mutual funds online and grow your wealth with time. This will make you financially independent.
Trust One Investment (or Company)
This is a big risk in itself. In today’s competitive and highly risky market, you can’t really trust a single type of investment or company. Several investment instruments that too in different niches are available today, and also countless sources to get those investments. Not all of these investment options or companies will always see success. There will be a time when they will dip at least once. And when you put all your money in one place, even you will face a loss with every dip. This is the reason why all financial advisors and experts stress a lot of portfolio diversification. In short, your kids must put their eggs in different nests. Advise them to invest in various things. So when one investment dips, they won’t end up losing all their money. At least one other investment will always be there, giving them profitable returns and benefits.
Pay Off Student’s Loan Before Home Buying
The decision to buy a home depends on your market, finances, and plans, not one single factor like student loan debt. Total student loan debt has doubled over the last decade, while homeownership rates among young adults have plummeted. With a lot of student loan debt, it can be difficult for young adults to qualify for a mortgage. In addition to skewing debt-to-income ratios, student loans impact borrowers’ credit scores. There are plenty of good reasons to rent (more on those shortly), but if your only reason is student loans, start running the numbers. Over time, homeownership can not only save you money on your monthly housing payment, but it can also help you build wealth. It sometimes makes more sense to put money toward a down payment rather than paying off existing debts. After buying a home, you can always decide whether to pay off your student loans or mortgage first, or you can pay off neither right away and instead invest money elsewhere.
Keep 6-12 Months’ Emergency Fund
Your kid’s cash reserves should be based on the stability of your income and expenses and your risk tolerance. Everyone should have an emergency fund. All households need some cash readily at hand for a sudden roof replacement or unexpected job loss. But how large that cash cushion should be varies from household to household. For households with stable 9-to-5 income and expenses that remain relatively consistent from month to month, keeping one or two months’ expenses in cash could be plenty. To keep more would be to squander the opportunity to invest and earn strong returns. Cash has a negative return every year; it loses money to inflation, historically at a loss of around 2% per year. Households with irregular incomes or expenses should keep more in cash as a thicker buffer to ride out the fluctuations. For them, the risk of several choppy months in a row is often more serious than the risk imposed by inflation. Read up on strategies to build an emergency fund when your income is irregular if your needs are different than the average 9-to-5 employee’s. Finally, remember that a household’s expenses should ideally be far lower than their income.
Remember, there is no one-size-fits-all mantra in financial matters. What worked for you 20 or 30 or even 10 years ago may now be outdated for your kids. Trust your kids, but always have their back. Help them wherever they fall short, but don’t confuse your kids with such outdated pieces of advice as doing so may put obstacles in the way of their financial success.
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