New Year's Resolution: 6 Steps to Your Kids' Financial Security

Last Updated Dec 30, 2010 11:30 AM EST

In tiny Prichard, Ala., authorities have stopped sending pensioners their monthly check. The city has exhausted its pension fund and town fathers say they cannot borrow or raise taxes enough to make good on any portion of the lifetime income "guaranteed" to its 150 retired workers.

This sad state of affairs, first reported in The New York Times, might not mean much to you. But it should. This is the world your kids will grow old in; one where even state retirement guarantees are, well, far from guaranteed.

Our financial safety net has been threadbare for years and it finally fell apart in Prichard, where pensioners are going back to work -- if they are able. In some cases, going without their monthly benefit has rendered them so destitute they have had to turn off the electricity and shut down the running water in their homes.

This is real. It's happening in America right now. And it's a problem that will only spread. Prichard is a canary in the coalmine. Hundreds of state, municipal and union pension funds are seriously under funded. Some of those will crash and burn too.

By the time your kids retire there will be nothing like a guaranteed income stream large enough to live on from the government, and probably not from most private employers either. Your kids will have to fashion an income stream for themselves through savings, investment, dividends, bonds and annuities.

That's why it's so important to teach kids about money when they are young. Things have changed. A generation ago it didn't matter if kids understood money issues. Jobs were plentiful; lifetime employment was all but certain. Retirement plans were generous and they were well funded. Futures appeared secure.

That was then. Today we are on our own when it comes to providing for our financial future, and you can't get started too early. That's why the financial literacy movement is gaining momentum. As the social safety net has rotted, policymakers and educators have wakened to the need for kids to get an early start on learning about how to save, invest and manage credit.

But this movement is in its infancy and still searching for an approach that works. Our newly defined National Strategy for Financial Literacy generally short-changes kids. The recently reconstituted President's Advisory Council on Financial Capability has a new set of priorities -- all quite worthy but generally less focused on teaching money concepts to youngsters.

More than ever, it seems, it is being left to the Bank of Dad to bring the kids along in terms of their financial know-how. So why not start the New Year with a strategy of your own -- one that includes:

  • An age-appropriate allowance (and no bailouts when the kids run out of money)
  • Regular discussion of wants vs. needs and of your kids' spending patterns
  • Opportunities to earn money beyond allowance
  • A mechanism to establish separate savings pots for short-term and long-term goals, and for charitable giving
  • A family 401(k) for teens with taxable income
  • A low-cost debit card linked to a checking account (instead of a credit card) for young teens
Get started now. For anyone younger than five, time is already running short and, as the pensioners in Prichard, Ala. learned, the stakes are real and they are high.

Photo courtesy Flickr user lipkee
More on MoneyWatch:
· The Rise of the On-Our-Own Economy
· Why Saving Early Matters
· Financial Education: How We're Missing the Boat
· Kids and Credit Cards: 5 Trends to Watch
· Top 5 Money Lessons for Kids
· How To Get Your Kids Started with a Roth IRA

  • Dan Kadlec

    Daniel J. Kadlec is an author and journalist whose work appears regularly in Time and Money magazines. He is the former editor of Time’s Generations section, which was written and edited for boomers. Kadlec came to Time from USA Today, where he was the creator and author of the daily column Street Talk, which anchored the newspaper's business coverage. He has co-written three books, including, most recently, With Purpose: Going from Success to Significance in Work and Life. He has won a New York Press Club award and a National Headliner Award for columns on the economy and investing.