The Three Things Kids Need to Know About Retirement
What should our pre-teens and early teens understand about what it takes to retire someday (or reach financial independence)?
Fancy spreadsheets and flowcharts showing future projections of yearly income, expenses and savings going 30 or 40+ years into the future will be LOST on my 10 and 13-year-olds.
So, what are the basic concepts they can be thinking about now? Ideas that hopefully they will carry with them into the future as a foundation to build upon?
Here are three key concepts they should understand at this age:
Concept #1: Expect to WORK HARD to earn money. No matter what anyone says there’s no easy way. Find a career they enjoy but plan to put in hard work. One way or another that’s the path to success in every field or craft. So, be prepared put in the work first, before reaping the rewards.
Concept #2: SAVE some of everything they earn. For young people just beginning their careers, a good place to start is by saving 10% of every paycheck. They should make this a habit and do it beginning with the first paycheck they receive and never stop.
Check out my recent post on this topic: Why Teaching Kids to Save = Teaching Financial Freedom
Concept #3: Put their money to work. In other words: Investing. Once they’ve saved the money then they can invest it in ways that will either grow in value or generate income (or both!). Those investments can take many forms. They can be their own small businesses, stocks, bonds, real estate, etc.
Eventually, the combination of…
- the money they’ve saved,
- the increase in value over time of that invested money,
- and the income they receive from it (rent, dividends, business profits)
…is what will enable them to retire if they accumulate enough to pay their expected living expenses for the remainder of their life.
Obviously, Concept #3 is a very broad topic and real life can have many more factors than this. But for this age group, we just want to keep it simple. It’s the overall idea that’s key.
It’s important to talk to kids about this and reinforce it on a regular basis. It’s the basic outline of what they will need to do if they want to retire someday or at least reach the point where they are financially independent.
Already having this framework in mind will give them a big advantage as they go on to high school, college and begin their careers.
Here’s another recent post that you might find interesting: 13 Great Biz Ideas for Kids