Building a Cash Reserve – for Students - by Aaron Eppard

The benefits of a proper and productive early childhood education is one of the major advantages that the United States has in the world today. Making sure that this doesn’t stop at the academic level is of the most importance. Understanding that children should learn positive financial habits and develop a strong economic perspective is something that I would need to belabor you with statistics for us both to understand its implications. So, I’ll briefly walk us through an exercise that has been pivotal in my own life, that continues to impact my decision making today.

It starts with a stipend. For this example, we will use $25 per day, this isn’t a recommended amount, it’s purely for example. The idea is that each day they have an amount that they can use towards whatever it is they want to use it on. They can spend the full 25 each day, they can spend none of it, they can spend 10, and so on. The premise of it is that it will put your kids in a place to balance their short- and long-term perspectives of their spending decisions. Today has $25 to spend, so if there’s a $30 expense, either it can be afforded, or they have to take $5 from tomorrow’s stipend. If the child has a tendency to consistently make $30 expenditures they’re eventually going to feel the hurt of the amount of days expenses that they’ve drained, and it’s up to their parent or guardian to be the bank that says no eventually. The opposite of it goes to say that if they have $25 for a day, they have a $20 purchase, and so they have $ left. They choose to add that $5 to a future day’s stipend or they can bank it. This is where it can become exciting. Depending on the stipend amount, say the child averages $15 per day in margin, at the end of the year they have accumulated just under $6,000 (the max the child would be able to contribute to their Roth IRA depending on earning limitations). In college especially, it forces the student to consider if they want the money for when they go on spring break, or if they want to go out to eat for the third time that day for the fourth time that week.

We utilize a quote that says the longer the term of your thinking the better your decision today. Helping the younger generations create, develop, and maintain this perspective in their financial decision-making yields to generational harvest of sound financial decisions. Need to chat about your cash reserve? Give us a call!

 

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