Parents: Teach Your Children (To Retire) Well
Do you want to know an often underutilized strategy to increase the odds you will retire in comfort? It not only has the power to make you more financially secure, but it can give you greater peace of mind. What’s more, you won’t have to leave your kitchen table to use this method.
Here it is in a nutshell: Teach your children how to save for retirement.
Usually, the guidance suggests children learn by example.
“One of the most powerful ways to teach your teenager about money is setting a good example for them to follow,” says Michael Minter, Managing Partner at Mintco Financial in Tampa. “If you use a budget, save money regularly and are open about this with them, this will have a big impact on their understanding of how to manage money from an early age.”
What’s the best way to learn how to set a good example of saving for retirement? As silly as it sounds, it’s by teaching your children how to do it.
“When you see the benefit of a savings account for your children, it may make you think about the benefits you could gain if you had your own savings account,” says Ethan Taub, CEO of Goalry in Newport Beach, California. “If you can see the benefit in your children’s stability, you may want to be more stable too.”
This is not some idle theory. Teachers will often assign presentation projects to students. The idea behind this is the concept that the best way to learn something is to teach it to someone else. Parents can team up to implement this same tool.
“Learning by teaching is a great method to use when teachers want students to have a deep and contextual understanding of a subject,” says Arash Fayz, Executive Director at LA TUTORS in Beverly Hills, California. “By assigning students a project that requires them to teach a lesson to the class, whether it’s individually or as a group, students learn material beyond just memorization and recitation.”
Think about what it takes to prepare a retirement saving “lesson” for your kids. In the process of determining what to cover, you may uncover some facts you never knew or, at the very least, reinforce ideas you’ve long been aware of.
“When you are presented with the task of teaching a brief lesson, it is likely that you will be quite diligent in thoroughly researching and learning the material you will be presenting,” says Debbie Lopez, Community Outreach Director for Zivadream, an education advocacy and test prep review website.
Lessons tend to sink in with the teachers before they even begin teaching the student. By presenting the ways your child can save for retirement (and why they should), you won’t be relying on the language of the financial industry. You may start there, but it won’t mean anything unless you can translate the usual jargon into something you and your kids can understand.
In undertaking this translation, you’ll find it will bring with it a greater comprehension of the ins and outs of saving for retirement. This is why teachers are encouraged to have their students give class presentations.
“When you assign a subject for your student to ‘report,’ they’re going to have to do a lot of reading about the subject,” says Aaron Simmons, the founder of Test Prep Genie. “Aside from that, they’re also going to have to summarize it in a way that’s easy for them and their classmates to understand. To accomplish this, your student will need to have at least a basic understanding of the topic.”
Consider what will go on inside your head when you begin delving into what might motivate your child to save for retirement. You’re going to take what you know and determine what knowledge you take for granted but might be entirely novel for your offspring. This is what reinforces your own understanding of the topic.
“When it comes to preparing for major exams, having the student teach the subject areas being covered is one of the best ways for them to learn,” says Alex Beene, ACT Prep teacher in Nashville. “When students are assigned to teach something, their brains, much like teachers, start thinking of ways to make content easier to explain and more accessible to complete. This can lead them to reassess the way they currently handle academic material and discover better ways of answering challenges that are better suited to their strengths.”
In case you’re curious, there’s a behavioral explanation for this.
Montreal based Anthony Babbitt has been teaching for over a decade and is completing his Ph.D. in higher education. He also has a master’s degree in psychology. He says, “The best way to learn something by teaching derives from the fact that you are not simply memorizing. You must take your knowledge and explain it to someone else in a manner that makes sense. The word ‘teach’ means not only that you have actively shared knowledge but also that the knowledge has been understood and integrated by the pupil. This is why the phrase isn’t ‘the best way to learn something is to spout off about it to someone else.’ When the pupil has truly understood the concept, so has the teacher. The act of taking knowledge and presenting it in an understandable manner allows the teacher to obtain a better grasp of the subject.”
Looking for a more practical explanation? Adam Cole, the Director of the Grant Park Academy of the Arts in Atlanta, tells a personal story about how teaching helped him learn. He says, “I discovered my piano playing got much better once I started teaching. Here’s why: Think about the difference between someone who builds a cabinet from Ikea following the plans, versus someone who builds cabinets for a living. The first person follows a chain of instructions and can successfully complete the cabinet, but would not be able to replicate the act without another set of instructions. The second would only need the instructions as a guide, since they understand the process backwards and forwards, and can build any number of cabinets.”
If you think teaching your children how to save for retirement will help you practice good retirement saving habits, imagine what it will do for your children.
“You can teach children about saving very early, and it’s a habit that will help them for their entire life,” says Taub. “If you can teach them how to save their allowance in a better way, it will be a skill that will set them off right.”
You might not feel you have the expertise to teach, but don’t underestimate the excitement your little ones might have when you ask them, “Hey, would you like to retire a multimillionaire?”
“Most kids love learning new things,” says Minter. “When you explain the importance of saving, they’ll be more than happy to do their bit. For children to learn about budgeting they need to take control of their money. Knowing what money they’ve got, what they’re spending it on and how they can earn more are important stepping stones towards developing strong savings and budgeting habits.”
If you still don’t feel comfortable talking finance with the tykes, try bringing in somebody else in the clan who the child recognizes as “successful” when it comes to money.
“I believe talking to children and family members would be a great first place to start,” says Brad Griffith, a Financial Planner at Buckingham Advisors in Westerville, Ohio. “In addition, you might look for family members who are successful financially so they can provide you feedback and perhaps even share new concepts you can use.”
Your budding teenager can retire a multimillionaire just by saving in an IRA through the end of high school. They don’t even have to take investing seriously, just as long as you instill within them the discipline to save consistently. Calculations show that, by saving the maximum allowable IRA contribution from age 13 through age 18, and if that IRA earns 3% less than average, that IRA would be worth more than $2 million when your child retires at age 70.
“With time on your side, the biggest opportunity for impact is empowering your family members and children to become financially savvy,” says Gerald Grant III, Retirement Planning Specialist at Equitable Advisors in Miami. “They will in turn be better stewards of finances and can impact others and the community organizations around them. This unleashes the power of generational wealth and as they master these concepts, they will have more knowledge and resources to empower others to do the same.”
Teaching your children to retire well can give you peace of mind, too. “We all do not want our family to be in financial trouble, so by having a savings account you can help your family out of situations as well as yourself,” says Taub.
Here’s your homework assignment: Take all those financial education materials you got from work about saving in your 401(k), translate them into something your child can understand, then sit down at the kitchen table and let the lessons begin.