Your daughter may run this country someday.
Even if she doesn’t rise to the level of stateswoman, she’ll most likely make her own important financial decisions and run her household’s finances — a very important job in its own right.
According to the Family Wealth Advisors Counsel's Women of Wealth Study 2015,
- Women are the breadwinners in four of 10 American families
- Almost 95 percent of women will be their family’s principal financial decision-maker at some point
- Breadwinner women are responsible for no less than 75 percent of all financial-planning responsibilities in their households
- Breadwinner women are assuming as much as 90 percent of the responsibility for charitable giving, paying for college, retirement planning and overall saving
The question is, how do you prepare her? Preparing our daughters to be money smart is an important part of readying them to be independent, successful adults. The key is to start early and teach them three important lessons.
Every teenager, especially girls, should learn:
- How to save.
Obviously, our daughters need to learn good savings habits. A good rule of thumb for adults is to save 20% of their income — 10% for long-term goals such as retirement and 10% into a liquid emergency fund.
Encourage her to save 20% of every dollar that flows through her hands from a young age, whether it's something she earns herself or a gift she receives.
If she starts this habit as a teenager, it will be natural for her to continue it for life. To reinforce this habit, match her contributions to her savings account and watch it grow together.
- How to spend.
This may sound counterintuitive. We want our girls to learn to manage their household finances and are starting by teaching them to spend? You might think we should stick to “saving."
However, your daughter needs to learn to stretch the value of her hard-earned dollar — she may be making a lot of them.
Consider this: If your daughter makes $75,000 a year at the start of her career and never gets a raise or a bonus her entire life, in 40 years, she’d have $3 million dollars run through her fingers.
According Calculators.org's Lifetime Income Calculator, if she were to get just a 3% raise per year, she’d earn over $5.6 million over her career span.
You want to instill spending savvy early so she makes the right choices with those millions. Here are a few ideas on how to educate her.
Teach her to get the maximum value for her dollars spent
Use hands-on learning. According to a 2012survey by the AICPA and Harris Interactive, “61 percent of parents pay an allowance to their kids, with the majority, or 54 percent, beginning by the time their child was 8. While the amount varies by age, the average allowance totals $65 a month, or $780 a year.”
If you give your child an allowance, make it a learning experience . If she is earning extra dollars by working for you, babysitting, or with a part-time job, use the opportunity to teach her to stretch those dollars. Put her in charge of certain purchases with that allowance, such as sporting equipment or “extras” for extra-curricular activities.
When she is in charge of her sporting gear, she’ll find that she can get fabulous brands gently used at places like “Play it Again Sports” instead of purchasing new equipment.
The same is true for clothing. Teach her to use systems like a wardrobe capsule to make outfits from items she already has and add fewer new (expensive) pieces.
Teenager Eva Baker, author of 7 Days to Centsible Savings, uses this concept to buy fewer clothes to begin with and tends to keep her accessory pieces longer since she can mix and match those pieces to create new outfits all the time. Click hereforan example.
Teens (and the rest of us) can purchase staples on discount and buy one or two trendy pieces to top off an outfit. When your daughter makes her own purchases, and allow her to keep the savings she obtains by spending less or spending smart or stretching her dollars to buy additional items, she’ll quickly learn to comparison shop, check for discounts, and use coupons … and have fun doing it.
Use a “how many hours” measurement.
Teach your daughter this guideline to help her gauge how badly she wants something. When she is contemplating a “must-have” purchase, add up the number of hours she would have to work to purchase the item.
For example, say she wants an adorable jacket for $130 and she babysits for $7 per hour. $130 divided by $7 per hour comes to 18 hours. Would she work for 18 hours for that jacket? Hmmm … maybe not.
Spend where it counts and save where it doesn’t matter.
When she wants to go out to dinner instead of staying home and cooking, sit her down with a calculator.
Do the math. If your family eats out three nights a week, as busy families often do, consider eating out once a week instead and cooking or eating leftovers the other days. See how much you’d save.
Let’s say a meal at home costs $20 for a family of four. Eating out at a restaurant may cost closer to $60 for the family. If this family replaced 2 of the 3 “eating out” meals with cooking, they would save $80 per week. In a year’s time they’d have saved over $4,000 by cooking more often.
The concept applies to lunches, too. Here is a “bring your lunch” calculator from 360 degrees of financial literacy to see how much you might save by brown bagging it.
Ask your daughter what would sherather do as a family, go on a vacation next year or eat out twice a week? Play at the beach or eat a burger that someone prepared for them?
Teach your daughter to spend her money on what’s most important and not waste it on things that don’t matter as much.
- How to negotiate.
According to recent research by Vanguard, men have a 50% higher balance in their 401(k) plans compared to women, even though men and women invest at about the same risk level and the same percentages (thanks to autoenrollment). What gives?
In part, this difference is due to men's salaries being higher. There could be many factors that contribute to the salary differences -- one of those may be the tendency and skill to negotiate for ahigher salary. One thing is self evident, no matter your gender, when you start out at a higher salaryand bump up at higher increments, that can make a significant income difference over the span of a 40 year career.
Consider if your daughter started her career with an $80,000 salary instead of $75,000 and increased that salary at 5% per year on average instead of the 3% we used in our earlier example. Using the Lifetime Income Calculator, you can see she'd have made $9.5 million dollars over her working career instead of $5.6million —not quite a double but substantially different.
Teach her to ask for more. Encourage her to test the limits of a seller by offering a lower price and/or asking for extras when she’s shopping for something.
Let her do the negotiating to sell household items at a yard sale — then let her keep the difference if she is able to sell it above your bottom-line price. Negotiation can be fun!
If you aren't a good negotiator yourself, enlist the help of someone in your life who is.
Making more money and learning to manage it well can make a big difference in your daughter'slife.
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