We can't change the financial past, but we can use its lessons to help save our kids and grandkids from mistakes we've made. Admittedly, many younger people won't be happy to sit and listen to a lecture on prudent money management. But with the right presentation and creativity, full of lively examples from your own particular journey, you can capture their attention.
So what lessons should you be passing on? Below are six that financial gurus agree should be taught sooner than later:
Money Lesson No. 1: Budgeting is hard, but find a way to make it work for you.
How many budgets have you created and ignored over the years? More than you count, probably. "Budgeting is unrealistic. We have to get real and practical," says Robert Pagliarini, president of Pacifica Wealth Advisors. To that end, he offers the P.E.R.K. strategy: Grab a pencil and paper and list out expenses to weed out excess spending.
Put a "P" next to items you can postpone (buying a car, going on vacation, for intance), an "E" next to things you can eliminate (magazine subscriptions), an "R" by expenses you can reduce (eating out) and a "K" next to must-pay expenses (health insurance).
"It works because you become conscious about where your money is going," he says. "If all we did is simply write out what we bought, we would save more."
Money Lesson No. 2: The stock market is unpredictable, but you're in it for the long-term.
Although recent stock losses are a tough pill to swallow, use this time as a teachable moment for tomorrow's investors. "There is so much emotion in the market," says Chris McLean, principal and client strategist at Signature, a wealth management company in Charlottesville, Va. "But you've got to have discipline when you're invested. The market always bounces back."
His tip? Allocate a portion of your portfolio to a cash cushion so that when dips in the stock market happen, you won't feel wiped out. But don't put all your eggs in one basket. "Don't chase the screaming sector." Be wary of jumping on the next hot stock. Think of how people who went for Facebook now feel, as the stock remains well below its opening-day price.
Money Lesson No. 3: Save strategically, with a plan.
Here's a good method from Pagliarini. Save half of your age. Take your age, divide it by two, and that's the percentage of your income that you should be saving. For example, if you're 20 years old and just starting your first job, you should save 10 percent of your salary. If you're 44 years old, you should save 22 percent.
Benefits? "When you're younger and aren't making much, reaching the target savings rate is easier," he says. "When you're older, you're not only saving a greater percentage, but you are presumably making more money and are saving a greater dollar amount."
Money Lesson No. 4: Take credit seriously.
This lesson is a vital one to learn before kids get to college, where many 20-somethings begin to get into trouble with credit card debt. According to a 2009 study by Sallie Mae, the average senior graduates from college with about $4,000 of plastic debt.
"Only take out the amount of debt you can afford to pay back," McLean cautions. "Credit cards can be an evil because it's easy to accumulate balances you can't pay off monthly."
Money Lesson No. 5: Get comfortable with the idea of trade-offs.
Unless you were born with a diamond-encrusted spoon in your mouth, you won't always get everything you want. Learn to be OK with sacrificing today for something greater tomorrow. When you trim your vacation from two weeks to one, do it knowing that the money saved will go toward the down payment on that condo you're going to buy. Trade-offs help us appreciate what we eventually get and ultimately make us happier people, Demmissie says.
Money Lesson No. 6: Accept responsibility for your financial future.
Some things may come awfully easy to the younger generation today — instant fluency with a new tablet computer, say — but the promise of a plum job right out of college may not.
Visions of retiring comfortably — even early — sound sweet, but they will generally require more than faithfully putting a bit of money into a 401(k) plan each month. As many boomers are learning the hard way, a single retirement account and Social Security may not be enough.
To this, experts say: Plan for no help. "If you hit the lottery or get an inheritance, that's great," says Pagliarini. "But plan like you won't."
Assume that as you go through life you won't get help from anybody. That way, you'll find yourself making sacrifices to make sure you stay on keel. If you take control by saving with IRAs, mutual funds and other accounts beyond the 401(k), then guess what — down the road you'll be OK.