There is a lack of basic financial education in our schools, and that means you, as the adult in a child’s life, need to step up and fill the gap.
In this episode, Darren Wurz discusses the importance of financial literacy and shares a number of things his dad did that helped him start out on solid financial footing–things you can do for your kids too! These steps could make a huge impact on your children’s financial future.
- Why it is important to help your kids start saving and investing early on
- How adding your kids to your credit card can boost their credit score and help them as they start their careers
- Why law firm owners and business owners should hire their kids and the tax benefits they can reap
- And more!
Connect with Darren Wurz:
- 30 Minute Chat With Darren
- Wurz Financial Services
- The Lawyer Millionaire: The Complete Guide for Attorneys on Maximizing Wealth, Minimizing Taxes, and Retiring with Confidence by Darren Wurz
- LinkedIn: Darren P. Wurz
- LinkedIn: The Lawyer Millionaire
- Twitter: Wurz Financial Services
Transcript:[00:00:00] We are on a mission to help lawyers and law firm owners maximize wealth and achieve financial independence. Welcome to the Lawyer Millionaire with Darren Wurz from Wurz Financial Services. In this podcast, we will help you build wealth, minimize your taxes. And plan for retirement with money management strategies designed for the legal profession.
Join us in this journey where we help you manage your money so you can make the most of your future. Start feeling confident in knowing you are well prepared for retirement and on track to financial independence. Now onto the show.
Patrice:There is a lack of basic financial education in our schools, and that means you, as the adult in a child’s life, need to step up and fill the gap. Darren Wurz started learning in elementary school and he learned from his father. I’m Patrice Sikora. So Darren started with a savings [00:01:00] account and what came after that?
Darren:Yes, absolutely! It started with a savings account. I was actually, I think I was in like fourth grade when I opened a savings account, and I don’t remember the name of the bank. I think it got bought by another bank, but actually I think there was this program. They came around and you could open up a savings account as a kid.
And I was one of those weird kids that when it was my birthday or when it was Christmas and I got a bunch of money from relatives, aunts and uncles and things, instead of going out and buying stuff; and sometimes I would buy some stuff, but usually I would just deposit it in my bank account.
Patrice: Did you, did you have a little passbook too? Because I did.
Darren: Yes, I did. Yes. I sure did! And you know though, that was back in the days when you could earn interest in your savings.
Patrice:Do tell. Yes.
Darren: I think that’s coming back in vogue now. But yeah, in those days you could, you could earn interest and you know, I would get my statement and I would write in a little check [00:02:00] register.
I would add up the interest and keep track of it and all that stuff. So I think I caught the finance bug. You know, pretty early on just from that. And then, being that my dad was a financial advisor, it really helped because he was able to kind of introduce me to, you know, investing and financial concepts and things like that.
And so that was really good. I got to learn a lot from him. Some of my erarly experience. So he got me into investing early on as a kid. I think I was in middle school when I started investing. My first foray into investing was through mutual funds. And so dad brought home some literature about the mutual fund, some different mutual funds and I read about them and what they invested in and the companies that were in the funds and how they operated and that sort of thing . And so it was really a kind of a great introduction, early education on investing and how it works.
And I started investing in [00:03:00] mutual funds. I think the first mutual fund I bought was through a company called Alliance Bernstein. I dunno if they’re around anymore or not. But it was a small mid-cap value fund, and I think it did pretty well. I mean, it was so long ago. I can’t remember now.
Patrice: The fact that you remember this much is amazing.
Darren:Yeah, yeah. Well, this was like in the early two thousands. So it was after the aftermath of the tech bubble and, you know, all of that jazz. But yeah, I started doing that and then I added some different mutual funds to the mix and, I didn’t do much with individual stocks, but I think that would be good for kids to, you know, to kind of play around with individual stocks to a little,
to a certain extent but, you know, hey, I learned the value of diversification early on.
Darren: And wow, that’s a really good lesson to learn. You know, if only I had put my money in Google in the early two thousands, that would’ve been great.
Patrice:We wouldn’t be talking here today.
Darren:Right? I would be retired. You know, but I think that’s really good.
So if you have kids, get them involved, get them interested in [00:04:00] investing, teach them about different types of investments and really the best way to get your kids educated and interested in investing is to get them invested. You know, open up an account for them and give them some ownership.
You know, let them decide. That’s what my dad did. He let me decide which funds I wanted to buy, and that was kind of cool cuz then, he had his funds and I had mine and we could kind of look at them and see which ones were doing better and, and that sort of thing. And so that was really fun and that’s a great, could be a great, activity for you and your kids as they’re getting older.As they are getting to the age where they can understand those concepts.
Open up an account for them, put some money in it, and then encourage them, of course, to add to it as they are able too. You know, if your kids have a summer job or something and they earn money. Encourage them to put money in that account. You know, and it’s not just putting money in an account. So here’s the other cool thing, right?
Not [00:05:00] just any kind of account. One of the best things you could do for your kids if they’re, if they’re working on, say they have a summer job or something. Is to have them open up a Roth IRA. That would be..
Patrice: That would be awesome!
Darren:Yes. First of all, I mean, it’s just the compound growth. Okay. Can you imagine
Darren:Putting money in a Roth IRA at age 15, let’s say. Then you retire at, let’s say 65, that’s 50 years of compound growth.
I mean, that money can really turn into something extraordinary over a huge, long period of time like that. So that’s really fantastic. But there are other reasons that the Roth IRA really makes a lot of sense. You know, first of all, if your kids are going to college. You need to think about that carefully.
If a kid has money that’s in their name, like, let’s say they just have a brokerage account and they have money that’s in their name. That is going to count very heavily against them. [00:06:00] When it comes to financial aid, that’s a right off…
Patrice: Yeah, right, right off the fafsa.
Darren: Right off the fafsa. That’s an asset that they have.
However, if that money is in a Roth IRA, that’s retirement money. So it doesn’t count.
Patrice: That’s right!
Darren: Mm-hmm. So it’s kind of a great way to let them have some money, but also let them retain their ability to possibly qualify for financial aid through the fafsa. So that’s one really, really big thing. Then there are other really cool reasons that I love Roth IRAs, because there are some really fascinating things you can do with them. Not many people know this, but you can take your contributions to a Roth IRA out at any time for any reason, without any penalty or taxes.
Patrice: Well, you’ve paid the [00:07:00] taxes.
Darren:Yeah. So you’ve already paid the taxes. Yeah.So that’s how the Roth IRA works. It’s after tax money that goes in, and then, you can’t take out the earnings without any penalty until you’re 59 and a half. Or if you or, you know, but then you still have to pay taxes on, on the earnings too. But it’s the contributions portion. So if you have, you know, let’s say you’ve got $16,000 in your Roth IRA, 10,000 of it is contributions, 6,000 of it is earnings.
That 10,000 of contributions is accessible at any time for any reason. So, that could be money that your kids could use for any purpose. We want to encourage them, of course, to stay invested and keep their money invested. But if they wanted to use that money for a first time home purchase or to buy a car or for education expenses, that is accessible to them for those reasons or an emergency, so that’s a really great feature.
Okay, then it gets even more [00:08:00] cool. And the even more awesome part is that there are certain exceptions under which you can withdraw the earnings portion without paying a penalty. You would still have to pay taxes, but you wouldn’t have to pay a penalty. And some of those exceptions are education costs.
So qualified education costs. You can use Roth IRA earnings. You can also use traditional IRA money for that purpose without having to pay a penalty. But remember that you do have taxes. The other really cool exception that may apply to your kids as they’re growing up is a first time home purchase.
It was $10,000 before, it may have gone up. But anyway, there’s a certain amount that you can take out of the earnings portion. And you can use it for a first time home purchase. And so that could be really great for your kids. So help them learn a little bit about saving and investing.[00:09:00] Of course the foundational step would be to have them set up a bank account.
Darren: I was a teacher right, in a former life, and so I’m aware of this deficit in our educational programming. That there’s not a lot of education about finance and setting up accounts and things like that.
And I don’t know, you know, in the schools that I taught at, we didn’t have that kind of a program. And most of the kids that I worked with who were in high school, they didn’t have, you know, a lot of them, most of them didn’t have bank accounts. Even when they started driving, they were just starting to think about getting a bank account.
So it’s really important, I think, for kids to start thinking about these ideas early on. As soon as you’re able to help them get a bank account set up, set up an investment account, set up a Roth IRA for them, if they’re working.
Patrice: Wouldn’t it be great if in the schools, banks had branches right in the school?
Patrice: Like a credit union would have at a [00:10:00] place of work. The kids would be exposed to it right there. I’ll bet you many of these kids haven’t even been in a bank.
Darren: That would be cool. Yeah. Kind of, like they have a bank inside Walmart. I don’t see why they couldn’t create some kind of a community partnership.
That’s kind of an interesting idea. Yeah.
Patrice: All right. Run with it. It’s yours! Now, this particular suggestion you have, I’m not so sure I agree with, but I can see some of the merits. You say add your child as an authorized user on your credit.
Patrice:Whoa, whoa, whoa. Scary.
Darren: Yes. Yes. Now this is a great idea.
I’ll tell you why it’s a great idea and I’ll tell you what the dangers are. I mean, you probably already are thinking as you’re listening to this, what the potential dangers are.
Patrice:Excuse me a little bit!
Darren: But here’s the thing, right? Credit is so difficult to build up, especially [00:11:00] when you’re young.
You know, when you. The worst thing is having no credit. No credit is almost worse than bad credit cuz you have no history. So, you’re graduating college or you’re graduating high school and you’re trying to get your life started and things. It can be difficult. To accomplish certain things.
Even rent your first apartment if you don’t have any kind of credit history. So it’s a great idea to add your child on your credit card. And the reason for that is that they will inherit your credit history and they’ll inherit …….Now… Okay, so let me add this caveat. Make sure you have good credit….
Patrice:That’s what I was just thinking!
Darren:Because if your credit is not so great, then maybe you don’t wanna do this. But if you have good credit, you can add them. They will inherit your history, your credit history from that card, and that will count towards their credit score. So, fascinatingly enough.
My credit history goes back to [00:12:00] 1984, which is before I was born.
Patrice: That’s very interesting, Darren.
Darren: Isn’t that weird? And that’s because my dad put me on his credit card so that I would inherit some of that good credit history. And some of that would count towards me and help me. So my credit score was great.
It was in the seven hundreds just getting out of college and not having any money because I had that credit history built up and I could use that as part of my own history. So that’s the reason you’d want to do that, you know? And then of course, let’s say, you know, your child wants to buy a house and why shouldn’t they?
The more credit history they have, the more good credit history they have, the better position they’re gonna be in to qualify for a mortgage and all kinds of good things. Now, obviously there are some dangers here, right? You don’t want them to go out and run up a whole bunch of bills on your credit card and go crazy with them.
So, you [00:13:00] know, this is gonna be something where you have to think about your own circumstances. How trustworthy is your child and that sort of thing. But the other thing too is you don’t have to actually give them a card. You could add them.
Patrice: Oh, oh, oh, oh. Just add them and not tell them.
Darren: Right? You could add ’em and not tell ’em. You could keep the card, you could cut the card up and throw it away. You know what I mean? So that would be one protection that you could put in place. You could maybe not actually give them a card. Now you might want them to have a card so they can do certain things.
Maybe they need to pay for gas and maybe you have some kind of agreement with them where it’s like, okay, you know, here’s the things you can spend money on and so forth. And I’m sure that there are protections you can put in place on the credit card, like a certain daily allowance. Daily limit or something like that, that might you know, put some more protections in place.
But this is a great way to help your kids get a great start in life with a good credit history. If your [00:14:00] credit history is good, put them on one of your credit cards. That’s really good. That it really… has no missed payments and has a really good history. And they will inherit that.
You know, it’s not only your good habits, it’s also your credit limit, you know, so that amount that you have is gonna count towards their overall credit limit, and that is one of the factors in your credit scores, your credit limit, in addition to, you know, are your payments on time? Have you ever defaulted?
And things like that.
Patrice: What about something like getting their own gas card or a debit card?
Darren: Yeah, I think that’s really good. And you should , you know, this wouldn’t be the only thing to do, have them get their own card and then they can start building more credit history for themselves in addition to maybe having them on one of your cards.
I think that’s really good. And of course you would wanna have them set up their, you know, bank account first. So they have their bank account, they’ve got their credit card. Good to go. But make sure you have a conversation [00:15:00] with your kids about what credit cards are for. I have talked to people in my own family who, when they were just starting out life, they got these credit card offers in the mail, and here’s why.
And another reason why you wanna do this because your kids are gonna get inundated with credit card offers.
Darren: And I know people who. Got those credit card offers and thought, oh wow, they’re giving me $10,000 to spend.
Patrice: Oh, no, not, oh, no,
Darren: Not cognizant of the fact that they’re not giving you $10,000 to spend, that’s a credit limit.
Then it has to be repaid, and so then going out and running up the credit limit, and then all of a sudden oops. I have to repay this money, so you might think that that’s very elementary and that’s a very obvious thing, but not everyone is necessarily aware of [00:16:00] that. So make sure you tell your kids, okay, this is not free money that they’re giving you.
This has to be repaid. You have to pay it off and help them establish a very good discipline and habit of paying off their credit card every single month. And not leaving a balance on the card. And make sure you really educate them about the dangers of leaving a balance on the card. You know what that interest rate is.
You know, a lot of cards, especially for new borrowers, might have interest rates in the 20, close to 30, maybe even over 30%. Um, If you have a 30% rate on a card, let’s say you max it out and you don’t do anything with it, and that amount that you owe is gonna double, triple in value very quickly, and then you find yourself in a really difficult situation.
So it’s not just, you know, adding them on the card. That’s great, and I’m glad you brought up those other points, Patrice, you want to educate them about the proper use of [00:17:00] cards and help them get a card in their own name so that they can establish good habits as well.
Patrice: Now the next point rather, almost rolls into the Roth IRA discussion as well.
If you own a business, hire your kids.
Darren: Yes, this is a great, great, great great idea. Not just for your kids, but for you.
Patrice:The tax implica, the tax strategy here is, it’s brilliant.
Darren: It really is. So a lot of our listeners are law firm owners. You own your own business. You can hire your kids in your business.
Now obviously, you know, your kids can’t do legal work, but there’s a lot of things that they could do.You know, maybe they can manage your social media for you. Kids are great at that, you know, they are a lot more tech savvy often than we are. They can figure those things out. Or maybe there are other things, secretarial work that they can do, administrative tasks that they can do.
For me you know, dad would have me come in and he would have me do some secretarial work for him. So, you know, maybe that was sending letters out to clients. [00:18:00] Uh, you know, so this is gonna, this is gonna sound real old, right? But he would, he would record what he wanted to be sent out on a tape recorder.
Patrice: A Dictaphone!
Darren: That’s it. You had these little tiny cassettes and you put the cassette in the thing, you know, these little pedals and you push the pedal to press, you know, to play. And then the other pedal deposit. And as you were doing that, you would type it out. And I was a really good, you know, typist because we had like the Mavis Beacon program in high school, and so I became really good at typing.
And so I would come in in the summer sometimes and I would help him type up some letters and send those out. You know, that’s a task that kids can do, if they’re good at that kind of thing, maybe at high school age or something like that. So, you know, think creatively about what kind of work they can do for you and you can pay them, and that’s the whole idea.
So here’s where the really cool tax strategy comes into place. Okay? So each taxpayer, if they’re filing their taxes, As a [00:19:00] single individual, and your kids hopefully are, they’re not married at this point. They’re filing their taxes single, so they get a standard deduction, which is up to $12,950.
Basically, that means they can earn up to $12,950 tax free. They don’t have to pay any federal taxes. Now, let’s say you pay your kid $12,000, they don’t have to pay any taxes on it. But you as the business owner get to write it off so it becomes a deduction to you and tax free income to them. Now you could have them use that money to pay for certain activities that they’re involved in or certain sports that they’re involved in or things like that. You know, kids’ sports are expensive. I know this. I’ve experienced that. So you could have them do that. And essentially what happens is your kids’ activities become tax deductible activities.
Patrice: They said
Darren: The other cool thing is maybe instead of that, maybe you have them put that money in a Roth IRA, right? And so essentially you have tax free money going into a Roth IRA that will earn interest and grow tax free. Wow.
Patrice: That is a big, wow. That’s a huge one.
Darren: So, yeah, so all the tax advantages just keep adding up and adding up and adding up.
You wouldn’t want to use a traditional IRA because there’s nothing to deduct, there’s no tax to pay, you know, so you want to use the Roth IRA and put the money there. So that is a really fabulous idea for your kids. Now you have to make sure that your kids are doing real work and you can justify the amount that they’re being paid.
You know, you can’t have them come in for an hour and sweep the floor and pay them $10,000, you know, the IRS would not like that so much. So they need to be doing actual real work. But this, I think, is a [00:21:00] great way that they can, you can, add some deductions and, and get some tax savings.
And then you can also get some money into their hands that they can use to pay for things. Or they can use, you know, to invest in a Roth IRA. I mean, let’s think about gas money, right? If your kids are driving and they’re probably, you’re probably paying for their gas, let’s be honest. So if you’re doing that, maybe you make them pay for their gas out of money that you have paid them.
All of a sudden their gas money is a tax deductible expense, essentially. So that’s a really cool idea.
Patrice:And just think of the bonding time you could have.
Darren:Absolutely. They’re gonna get to learn about your business.
Darren:That’s really valuable. And that was, for me, was very valuable as a kid, getting to learn about dad’s business and getting to understand what it’s like, what it’s like to deal with clients and things like that.
So, you know, I’m sure that many of our listeners, you want your kids. You know, maybe to follow you in [00:22:00] footsteps and maybe become an owner of your business one day. This is a great way to get them introduced to that. And, also to teach them the value of hard work and great work ethic.
Patrice: Now, there’s one other point here I want to consider before we wrap this up. This is, by the way, this is fantastic stuff. Personally speaking, I love it. Now, life insurance, should you get life insurance on your kids?
Darren: Absolutely, this is great, great, great idea. So the way life insurance works is the younger you are, the less expensive it is.
Darren:Now you, your kids may not need life insurance today. You know? They may not have any use for it. You may think. Later in life, they may be in a position where they want life insurance. Maybe they’re starting a family, maybe they’re getting married, and maybe they want to have life insurance to protect their spouse, to protect their family.
If you encourage them to buy it earlier, or maybe you buy it for them earlier, it’s gonna be a [00:23:00] lot less expensive. I think I got my first life insurance policy when I was in my twenties. It’s a hundred thousand dollars term policy, and it was a hundred bucks a year. I mean.
Patrice: Wow. Yeah.
Darren: Ridiculously inexpensive, so get them a nice sizable life insurance policy. It could be a whole life policy or it could be a term policy. Personally, I’m more of a fan of the term policy, but in any case, it’s gonna be less expensive the younger they are. Now, if you buy it for them, you could always assign ownership to them once they get to a certain age.
You know, if you buy it when they’re a minor, maybe you buy it, you name them as the insured.
Darren:Um, and you name yourself as a beneficiary and, and this is good planning. In any case, heaven forbid something should happen to one of your kids. It would be good to have a life insurance policy that you could use for expenses. That’s kind of a worst case scenario, but a better case scenario. And what we’re thinking about here is something, an asset that they can use later in [00:24:00] life and that they can have to protect their own family. When they get to that age where they’re starting, their family and that sort of thing.
So, yeah, If you’re buying a life insurance policy later in life, it becomes a lot more expensive. You know?
Patrice:So you know that.
Darren: Yes, absolutely. I know this. In dealing with clients every day, I mean, a hundred thousand dollars policy, your fifties or sixties is gonna cost you maybe, you know, Closer to a hundred thousand, you know, a hundred dollars a month versus a hundred dollars a year, you know, so, and I don’t know what the exact numbers would be.
It would really depend on your own situation, your own health. But yeah, this is a great way to kind of get them started with something that they can have access to and is gonna give them some protection later on in life.
Patrice: Darren, how can somebody reach you if they’ve got questions or if they’ve got ideas on.
Darren:Yeah, I love talking with clients about these ideas and putting these ideas into practice. Especially starting [00:25:00] Roth IRAs, helping my clients start Roth IRAs for their kids. I think that’s a really, really, really good idea. If you wanna talk to me about your own financial planning, your own retirement planning and putting together a comprehensive plan for yourself and your family. You can head on over to the lawyermillionaire.com and you can book a meeting with me right there on the website.
Just scroll to the bottom of the page and there is a link to my calendar. And also over there you can learn more about the book, the Lawyer Millionaire, and of course, This podcast.
Patrice: All right, and listeners, teach your kids, have them follow this podcast talk. Listen to it together, discuss the ideas. Heck, they can even share it with their friends, and let us know if you find it helpful.
Thanks for being with us. Thank you for listening to The Lawyer Millionaire. Click the follow button below to be notified when new episodes become available. This content has been made available for informational and educational purposes [00:26:00] only. This content is not intended to represent investing or tax advice. Always seek the advice of a qualified investment or tax advisor with any questions you may have regarding your own financial circumstances.