As the newest member of the Independence Advisors team, I’d like to introduce myself. I’ve been with the firm for a few weeks now, after spending 5 ½ years at PricewaterhouseCoopers in both Philadelphia and Denver, CO. This month, my wife and I will be welcoming our first child to the world. We’re incredibly excited and anxious to meet the little one (we don’t know the gender, it will be a surprise), and I’ve done quite a bit of thinking about the type of father I want to be.
One of the many things I hope to teach my children is how to handle money responsibly—and how to do so early on in their lives. A number of good articles and books I’ve read provide parents with strategies for helping their children develop good financial habits. One of the best is William Bernstein’s If You Can: How Millennials Can Get Rich Slowly. It’s a very short read and can be purchased for 99 cents on an e-reader. It provides many great lessons about lifelong saving habits for the young (and old) alike.
Saving early pays off
As you might expect, Bernstein covers the importance of staying the course in rough times, keeping investment costs low, and being wary of the perils of active management. Regular readers of this blog know these are things we’re passionate about here at Independence Advisors.
However, the importance of saving early is the one section that really jumped out to me since most young people don’t take saving for the future very seriously. According to Bernstein, young people should be saving 15 percent of their salaries by age 25 and investing it into a 401(k) plan, an IRA, or a taxable account (or all three). This stood out to me since most of the people my age don’t save anywhere near that amount for retirement, if they save at all.
As Bernstein observes, “[People] decide they need the newest iPhone, the most fashionable clothes, the fanciest car, or a Cancun vacation. Say you’re earning $50,000 per year, 15 percent of which is $7,500, or $625 per month. In this day and age, that’s a painfully thin margin of saving, and it can be wiped out simply by stringing together several seemingly innocent expenditures.”
Bernstein’s concept is so true and something I see every day. Younger people have such a fantastic opportunity to benefit from the compounding of interest over their lifetimes, but many still choose to delay saving. It’s critical for parents to instill the values of saving and investing in children from an early age, that way it will be second nature by the time they reach adulthood
I plan on keeping this short book around for my children to read when they get older, and also plan on passing it on to some friends in the meantime. I encourage you to do the same for your children, grandchildren, or anyone else you think could benefit. Also if you have any advice for a parent to be, I’d love to hear it. Please feel free to email me or call me at the office, (610) 695-8070.