In the world of parenting, generally speaking, having the financial means to provide your child a good quality of life, education and life experiences is a blessing. In my 35 years of investment advisement and financial planning, I’ve also seen the flip side: how some parents’ strong financial position and their desire to give their children the world can sometimes undermine their children’s future financial independence.
In a time when today’s young people face significant obstacles to building and maintaining wealth, consider your efforts to educate them and foster healthy money management skills a gift that will benefit them for the rest of their lives. Whether they’re six or twenty-six, here are a few tried-and-true techniques to instilling the right financial values in your child.
#1 Talk Money with Kids. As a child, I remember watching my dad as he set aside cash in envelopes for the church, for the grocery stores, insurance premiums – a practice that familiarized me with the concept of budgeting. Too often, I see my own clients insulate their children completely from conversations about money until there is a problem. Perhaps it’s a feeling of vulnerability that compels parents to give their children what they want, when they want it – at their own expense.
What I’ve discovered is that families who can openly and honestly discuss their budget can more effectively work together to meet their financial goals. Enlist the kids to help you save – whether it’s clipping coupons, comparison shopping or conserving electricity or water – and show them the savings they helped make possible. You’ll be surprised how receptive they are to contributing to the cause.
#2 Save monetary gifts. If your child is older than three, you already know how quickly children accumulate toys they never play with. Whether it’s a $10 check from a great aunt or a larger cash gift, sock monetary gifts away in a bank account that your child can watch grow. Earmark the money for the child’s first car. Sure, you have the means to buy them a car. But with some “skin in the game” – having their money going toward the purchase of the vehicle – they’ll automatically have a greater sense of accountability for this big-ticket item. I feel it helps them be a safer driver, knowing it’s “their car.”
#3 Buy some stock for real-life investment experience. This was a fun learning experience I did with my own son: I bought him a few shares in Fulton Bank, Disney and, at the time, Ford Motors and together we monitored changes in his investment. He would watch the stock price in the paper and know if his monthly brokerage statements were increasing in value. He saw the dividends being reinvested so he knew he was saving.
#4 Invest in college for a marketable skill. This one might be a little more controversial, but hear me out: I, too, had a child who wanted to study fine art. And it’s fine. We found a compromise. Together, we decided that if he studied art, he would also need to obtain a teaching degree so that when he graduated he would be able to attain a teaching position in his field that would provide a good living wage. He ended up using his gifts to be a software engineer but that met my requirement of obtaining a degree in a marketable skill.
We all want to see our children pursue their dreams, but we also owe it to them to draw on our own life experiences to help them make sound decisions. Have a kid who’s passionate about theatre, the arts, anthropology or women’s studies? Encourage them to take on a dual major or make the less marketable course of study a minor to one that will open up more career opportunities so they earn a living when they are finished school.
#5 Set clear expectations for “boomerang” kids. Is your empty nest suddenly not so empty? You’re not alone. The economic downturn saw more multi-generation families living under one roof than ever – especially college students who return home post-graduation. If you find yourself in this situation, have an open, honest conversation about your expectations sooner rather than later.
While your expectations are a personal choice, top on my list for my live-in adult child would be the expectation of employment – regardless of whether it’s in his/her field – and he must make a financial contribution toward housing expenses. For the latter, you can even consider saving their “rent” and allowing them to use it toward their first or last month’s rent (the security deposit) when they find an apartment.
We all want the best for our children. And we all struggle at times with how to give it to them. Start with a strong foundation for financial independence. It’s not always easy, but I assure you that the results will benefit you and your child alike.
Contributed by Sarah Young Fisher, CFP, ChFC, CFSC, CASL, CAP, president of Kuntz Lesher Capital LLC. Sarah manages individual portfolios and the investments of trusts, estates, charitable organizations and corporations. She is the author of four books related to individual investment strategy, including “The Complete Idiot’s Guide to Personal Finance in Your 20’s and 30’s,” an active community volunteer and the mother of two children.