Teaching your kids good money habits is a bit like convincing them that kale tastes better than ice cream. It’s easier said than done. The key to success? Start at a young age.
Take monetary gifts, for instance. This is often a go-to gift from grandparents or other relatives that don’t know what a child might like. Some parents will choose to give the child the entire amount. Others might simply deposit it in a college fund. But one young mom came up with a great solution. She created a hard-and-fast rule regarding gifts of money. Her son had to put 10 percent into a savings account and donate 10 percent to a cause of his choosing. That left 80 percent for him to spend. It was still a nice amount of cash to use for himself, but he learned two important things from this strategy: the importance of saving (and watching his balance grow) and the joy of giving to others. He’s now in his 30s and has accrued both a sizable savings account — and good savings habits.
Three tips for the early years:
Open a savings account. Try the strategy above or make your own rules. But let them see that account grow — whether you add to it on special occasions or as part of an allowance or with money they earn babysitting, mowing lawns or doing chores around the house.
Set a spending amount. We’ve all seen little ones throwing a tantrum when they don’t get what they want — with the entire world to see. The first step in preventing this scene is by avoiding the “Gimmes” altogether. Whether you’re taking a family vacation or short trip to the mall, decide what — if anything — you’re willing for them to spend. Let them know the amount ahead of time and then let them choose what to get with it. Choice is a powerful — and fascinating — thing! The cash may not have even exchanged hands, but in their mind, it’s now their money — and it’s interesting to watch how much more carefully they choose what to spend it on.
Be honest about money. Keeping up with the Joneses when you can’t afford it, teaches kids bad money habits. You don’t need to tell your kids how much you make, but if something is way too expensive, tell them honestly that it’s more than you want to spend right now. Maybe help or encourage them to earn the money for it themselves. Philip Taylor of PT Money, calls it “a great lesson in money math, delayed gratification, and the power of saving.”
After building a strong financial foundation with your children, being honest and open about money — both yours and theirs — will be easier when they’re older as well. Empty nests aren’t as common as they used to be. So what about college grads or independent adult children who want to move back home?
There’s nothing wrong with helping your kids become financially stable. The trick is to make sure they don’t become financially dependent by enabling them to settle in with no real plans. And that means helping them build — or continue — good money management skills. So here are some things to consider.
Communicate openly. Have a discussion at the outset about your expectations as well as theirs. Come up with a plan that’s agreeable to both of you regarding house rules, contributions to the household (whether financial or chores) and a reasonable time frame for them to become financially independent and move out. Keep in mind that these points are not cut and dried — they may be different for each parent, child or situation. And remember — it’s okay to be flexible and make adjustments as needed. As long as you both agree.
Find a job. For recent grads or someone between jobs, the first order of business is to find a job. While one in their field is obviously the goal, they may need to find a different job or part-time work while they’re looking. In the meantime devote time to networking, sending out resumes, searching job boards and volunteering — pretty much anything that may lead to a job.
Develop a credit rating. (But not so they can start charging things they can’t pay back!). Establish a prepaid credit card or co-sign a low-limit card with the understanding that they will pay off the balance each month. Discuss how credit scores are calculated, teaching them that too many cards and high balances are bad both for their credit and their pocket book.
Expenses. Discuss how much and how long you’re willing to help with health insurance and cell phones. It may be cheaper for them to remain on your health and cell plans than have their own “single” plan, but if at all possible, it’s a good idea for them to be responsible for their portion of your bill.
To rent to not to rent? Financial expert Robert O. Weagley, Associate Professor at the University of Missouri, admits it may be hard to broach the subject of your child paying rent or a portion of your food or utility bill, but it’s good for them to take some financial responsibility now — and understand the expenses they’ll face once they’re on their own.
Adult children that have the skills to manage their own finances have a bright future. Financial support from parents definitely serves a purpose — for a time. But it’s the unconditional emotional support that will last them a lifetime.