If you want your children to become financially irresponsible, have poor money skills, are in debt and financially dependent on you, start by giving them everything they want and helping them with their finances. Never hold yourself accountable.
Also, avoid discussions about budget, loans, bank accounts, investments or savings. Let your children find the meaning of these words through the mistakes they will make as adults.
For children to grow up to be financially responsible adults, they must have the opportunity to handle money frequently and from an early age. The ideal time for kids to know the consequences of poor planning and budgeting is when they are staying at home. When they live safely under your roof, it’s okay for them to learn what it’s like to spend money on something frivolous, and then later have no money available for something they really want or need.
You most expect the kids to clean their rooms, help with the utensils, take out the trash, and do other daily chores. And you can give them a weekly allowance for their efforts. But consider giving them the opportunity to earn extra money by helping them organize the garage, wash the windows, or do any other chores beyond the normal routine. Teach them the benefits and rewards of hard work very quickly.
We live in a culture that promotes consumerism and authority, but these values do not lead to personal happiness or financial success. Help your kids understand that money is only a tool, not an indicator of self-worth. Set an example for your children by living within your means. Emphasize low- or no-cost family activities such as board games, hiking, reading, or family movie night.
Even if your kids are spending their money on bad things, let them do so. They will learn from it, and it provides an opportunity to talk about it later. Recently while I was shopping, I heard that a mother underestimates her son for the choice he makes when choosing a toy. He believed the toy was a waste of money. Her behavior was creating self-doubt in her child. The toy he chooses will always have a negative connotation and may just sit on the shelf because the child, consciously or not, will be affected by his mother’s wrath.
Relinquishing control and letting kids make mistakes is part of teaching them. When a child is under your care, set guidelines to limit their mistakes to short lessons. But the amount of money should be sufficient to know about the important financial principles. Give them the freedom to make choices based on their financial limitations.
A fun grocery game that takes a little patience is to give your little ones a certain amount of cash, such as $3 to $5, when they go grocery shopping. Set your expectations before you enter the store, such as how you expect a child to behave. And tell them that candy is off-limits. Once the parameters are established, they can buy anything that fits within the budget. (Caution: This may be something you would choose not to.) This gives you the opportunity to discuss price and value. Once they have spent their allocation, they are done. If they weren’t satisfied with their purchase, remind them that they may choose a better option next time.
These rules should change as your child grows up. You can ask them to plan meals, establish a budget, then buy items for the meal. However you choose to implement this suggestion, over time it provides ample opportunities to discuss seasonal items, sales tax, product placement, common items, and more.
In our house, we only bought big-ticket items for our kids when it was their birthday or at Christmas. If they want an expensive item that isn’t specifically earmarked for a gift, we’ll offer to pay half the price. This meant they had to save their cash until they could afford the item. If they didn’t save for it, we learned that the item wasn’t really important. When they saved for the item, they were rewarded and also learned the benefit of delayed gratification.
Create learning opportunities that work within your family dynamics. Every summer before school started, we would spend a day shopping for school wardrobe and essential supplies. To plan this day, we identified a budget and listed the desired items. The budget would then be dissected and prioritized to address items that were necessary versus something that was simply a desire.
Then, any rules for what was or was not acceptable before we left the house would be established. An envelope of cash was earmarked for each child. The day was spent shuffling between stores and finding the desired items within budget. We’ll take a break for a nice lunch and then shop again until we’re done.
At the age of 16, all three of our kids got their driving licenses and wanted the freedom to go to school, do after-school activities, and drive to their friends’ homes. To satisfy their wishes, we provided each of them with a basic used car. With the car came new responsibilities. They were responsible for paying for the petrol of the car. This meant he needed to come up with a small side business or find a part-time job. His bi-weekly allowance will not cover the new expenses of owning a car.
Take your child to the bank and open a bank account or brokerage account. After receiving the statement each month, spend a few minutes discussing the information on the document.
When my eldest son was about 7 years old, we opened a bank account, and he made his first deposit. He was in tears while handing over his cash amount to the bank teller for deposit. But, after several years, he was ready to open a brokerage account. He quickly learned the benefit of compound interest.
Fast forward 20 years and he has traveled the world on a lavish budget. He found that the money he saved was too precious to be wasted on extravagant goods. And when he spends it, he chooses to use it for life experiences.
Talk about giving to charity even when children are very young. Talk to them about organizations they might like to support, then set aside a portion of their allowance for donations to those causes. Take them with you when you’re volunteering. While they are driving, encourage them to spend some time volunteering. When my daughter turned 16, she decided to volunteer as a foster kitten mom at a local animal shelter. While she was learning to be philanthropist, she also learned that she loves cats. Her favorite feline, Dusty, is now a member of our family.
Don’t let your good intentions spoil your desire to provide your children with a good life. Take as many opportunities as possible every day to teach your kids about money. The skills you teach your child as he or she is developing, good or bad, will last a lifetime. When you’re raising your kids, think wisely about your actions so that when they grow up, they and you are financially independent.
Teri Parker is the Vice President of CFP® Captrust Financial Advisors. He has practiced in the field of financial planning and investment management since 2000. Reach [email protected] via email.