The next time your kids buy something using an electronic payment method, ask them if they have any idea where the actual dollars come from.

Sadly, many don’t.

I wish more emphasis was placed on personal finance in our K-12 system, but unfortunately, it’s not.  So it’s up to us to take responsibility for the next generation.  

We need to become financial mentors.

Mentorship matters – especially in finance. I’ll bet that many kids, teenagers, even young adults would feel better about things if they had a “financial mentor.” 

And let’s be clear here, you don't have to be a finance professor or even have taken a finance class in college, to mentor them.  

You just need to talk to them. 

So here are five things you can talk about right now to help financially empower the next generation.

1. Talk About Money 

Talk about earning it. Talk about saving it.  

Help them create healthy habits at a young age. 

You want that new fancy phone? Okay. Let's pick some chores and we'll put a little money aside to help you save.  

Teach them how to budget.  

Remember, financial literacy goes way beyond money management. It’s a life skill. It's problem solving. It's decision-making. It's critical thinking. 

You're setting them up, personally and professionally, by talking to them now.  

2. Talk About the Economy

Again, you don't need to be economist or have taken Econ 101 in college.  Just talk about it. 

Inflation?  What does that really mean?  Tell your kid to call Grandma and ask her how much a loaf of bread was back in her day. Then take them to the grocery store and have them compare to the prices today. 

The cost of supplies has gone up.  Sometimes they pass these prices on to us, that’s why some things are more expensive now.  Make it that simple.

Why should you care about interest rates?  Well, they affect your student loans. They will affect your car loan when you start driving.  And when you get a credit card, interest rates could affect the amount of money you’re going to owe in the end. 

See, nice and easy.  

Another great learning experience is when young adults get their first paycheck.  Initially, they're all excited and then comes the “Um, where the heck did half of it go?”  

Take the opportunity to talk about taxes. Why do we collect taxes?  Some of it goes to keep our roads and public buildings in good shape.  Some of it supports welfare services and our seniors.  

So tell them to listen to the news and pay attention to where their tax dollars are being spent.  

And the unemployment rate?  Well, when you get out of school and you’re going to start looking for a job, if unemployment is high that means lots of other people may be looking for jobs too. 

That's all you need to say.  

3. Talk About Risk and Reward

Everything in life is a risk, with a potential reward, so helping them understand this concept can help them make informed decisions. 

Even asking someone on a date for the first time is a risk.  But the reward could be so sweet if it works out. 

The same goes for investing in companies.  Help them understand that buying a share of a stock today is a risk.  You have to put out some money today, but if the company is solid and the products are selling, there could be a reward down the line.

Of course, there’s always risks, such as if the company were to go out of business. 

Help them think through risks worth taking.

4. Talk About Compound Interest 

Compound interest is so important and sometimes so confusing.  So again, let’s make it simple for them.

Think of it like a snowball rolling down a hill. The snowball gets bigger and bigger as it rolls. 

So does your initial investment if you allow compound interest to work.

Here’s a quick example.  

Let’s say you have $100 and you are earning 5% annual interest.  If they do nothing, this time next year they will have their original $100, plus an extra $5 in interest.  Now they can take that $5 and spend it and let the $100 sit for another year.  This time next year, they’ll have another $5.  And if they keep spending the annual $5, they will only have the initial $100.

If instead they reinvest that initial $5 interest payment, they’re starting to grow their snowball.  Their $100 investment just became $105. So now the 5% on $105 is $5.25.  

That snowball is now $110.25 at the end of the second year.   After the third year, 5% on $110.25 is now $115.76. 

It's growing and you’re not doing anything. So let that snowball continue to roll! 

That’s the beauty -- and power -- of compound interest. 

5. Talk About Your Financial Mistakes

We have all made poor financial decisions or mistakes, so be honest about them and the lessons you’ve learned.  

Kids of all ages are less likely to fall into debt or make impulsive purchases if you say, ‘oh, well, I did that and it didn’t work out so great.” 

One of my many financial mistakes?  I graduated from college with credit card debt.  I know, awful.  But back in the caveman days when I went to college, the credit card companies were allowed to set up tables on campus and hand out applications!

I was a naïve sophomore in college with a brand-new credit card…terrible!

So, share your stories and the lessons you’ve learned.

Lastly, send them to ubs.com/the code.  There’s tons of approachable information here for kids of all ages to learn about money and personal finance.

Check out the recent 5 Things with Tracy Byrnes podcast I did covering all this and more.

And if there are any other financial issues that you want to know more about, please let me know at tracy.byrnes@ubs.com.

Tracy Byrnes is a CDFA® and financial advisor with UBS Financial Services. She focuses on assisting women through divorce, transition, and entrepreneurship. Her mission is to empower women financially so they can pursue their goals and confidently plan for the future. Tracy aims to be a stabilizing force for her clients, providing well-informed advice to help them plan for their families and businesses. Throughout her career, she has gained valuable insight and experience from the diverse range of people she has met, allowing her to translate complex concepts into straightforward advice. Tracy holds an M.B.A. in Accounting from Rutgers University and a B.A. in Economics from Lehigh University. She is also a financial expert who has been featured in multiple national networks and media outlets.

Tracy Byrnes is a Financial Advisor with UBS Financial Services Inc. a subsidiary of UBS Group AG. Member FINRA/SIPC in 600 Washington Blvd, 9th floor, Stamford CT, 06901.. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.  Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc. Neither UBS Financial Services Inc. nor its employees (including its Financial Advisors) provide tax or legal advice. You should consult with your legal counsel and/or your accountant or tax professional regarding the legal or tax implications of a particular suggestion, strategy or investment, including any estate planning strategies, before you invest or implement.

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