Mommy I want that new video game! Dad I want the new I-Phone! Grandma I want the new Mac Book! Most parents have heard some variation of the above statements. Parents usually are the primary financial educators for their children. Time after time, I have seen young people receive sizable allowances or inheritances, without a base of knowledge in financial planning. Consider the following five points to assist the children in your life to have a responsible attitude about money.
1) Be a Role Model – The way parents spend money and the way children view money has a significant correlation. Consider discussing the family’s financial goals and plans with the children. How much you share is to your discretion, but include the younger generation in at least a portion of the monthly management. How parents deal with money issues, from the monthly bills to planning family vacations can be important in teaching the children money management and the value of money.
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A client came in this summer and told me her son was entering college. Because her son was 18, he could access the money in his custodial account, and she wanted to know how to discuss it with him. Keep in mind each state has different age limits on custodial accounts that range from 18 to 21. There are essentially three scenarios that can play out.
A popular but unfortunate option is not telling your children about the money. This is denial. If you set a precedent of not talking about financial matters now, your children will have little hope for financial literacy in the future. A less common approach is to turn over the accounts wholesale. This is setting your children up for failure. Instead we need a reasonable plan.
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As parents we all want to give our children everything we could never have in our young lives. I cannot forget the emotional reaction I had to the lucky few of my fellow middle school students regaling our class with stories of their family summer vacations at Disney World in Florida. I never did get to go to Disney World as a child and this created such a strong memory for me that one of the first things I did after my third child was born, was to begin saving for Disney World. It took three ½ years but I was finally able to take our family on the vacation I could never have as a child. The point of this story is that sometimes childhood emotions surrounding money have a profound impact on us as adults; driving us to do things that may not be in the best interest of our children, such as spoiling them. Take a look around and you will see ten, eleven or twelve year olds walking around with cell phones, iPods, Prada bags. Underlying this is, I believe, our desire to provide our children with a better life. We all seem to want for our children what we could not have, ourselves, as kids. But where does this leave our children? Will they grow up being spoiled and self indulgent, expecting from society rather than being grateful for what society has given them? Is our parental need to make up for what we lacked in our adolescent lives going to hurt our children, and if so, how do we mitigate this?
Creating a Money Management Education Plan to properly educate your children about money requires three important and co-dependent elements:
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