How to Help Your Children Make Better Financial Decisions
By K. Bridget Schneider, CFP®, CRPC®
Recently I wrote about helpful ways to raise money savvy kids. Since some of you with older kids have asked, I am sharing my thoughts on how to help your children make better financial decisions.
A Different Perspective
It seems that those who earn money view it in a different way than those in the family who receive benefit from it. One reason for this may be that the person who earned it knows the effort it took. The beneficiary may not have any appreciation of that effort. Also, the primary earners may be concerned with how to continue making money or keep the family living in the style they’re familiar with. However, those who benefit from the income are simply accustomed to that lifestyle.
With that in mind, I suggest encouraging several opportunities for your kids to earn their own money. Babysitting or mowing lawns works well if you have an early teenager. If you have an older teen, you might want to help them get a job at a restaurant or in retail. As your teenager starts working, not only will they begin to appreciate the work you do and what it takes to fund your family’s lifestyle, but their perspective will widen as they gain experience with the public.
Families have different decision styles. Some feel that only those who earn money should have a say in how to spend it. However, that doesn’t give children a chance to learn how to handle money or to make financial decisions. It also doesn’t allow them to experience having a voice and having that voice heard. On the other hand, some families are very laid back and give their children control over money before they are ready. Try to find a middle ground. It’s important to share and learn from differing viewpoints – especially with teenagers.
Kids hear everything you say whether you think they are listening or not, so why not intentionally talk about money? If you are making a significant purchase like a new car or planning a big vacation, talking about it will help them understand factors that go into the financial decision. Did you save a long time for the purchase? Does the purchase have some significance to you? Talking about the “why” can teach kids your values on saving and spending.
Entitlement is a common issue that families face today. Most parents want their kids to be good citizens and develop a work ethic based on understanding the value of money and hard work. Some teach their children to prepare for the possibility of having less in the future, and to live within their means. However, some parents struggle with this. They don’t realize that their actions may create the situation they hope to avoid.
I’ve seen parents who would destroy their financial security before letting their kids struggle. Unfortunately giving away money when you can’t afford it doesn’t help your children make better financial decisions. It’s natural to want to protect our children from making financial mistakes. But small financial mistakes made when they’re younger provides experience to help them make better saving and spending decisions later.
So, if your son or daughter asks for money to remedy a poor spending decision, say no. Let them work it out. You can offer advice but resist the temptation to bail them out. The more experience and good financial advice your kids get from you now, the better prepared they will be for the adult financial world.
Fair Isn’t Always Equal
When you develop good financial communication with them, your kids will have a better understanding of your financial decisions. Fair isn’t always equal is a good discussion topic. Sometimes when parents decide to help a child financially, they decide that if one gets money, they all should get the same amount of money. But it’s okay to help one child and not another if you have good reasons for doing so.
Another example of a time when you may be fair without being equal is when creating your estate plan. Rather than simply dividing your estate equally, you may want to consider the financial needs of each beneficiary. Depending on what those needs are, your estate plan may be fair to all – but not necessarily equal. If everyone is taken care of and there is good communication about the why of your decision, then there’s less chance of hard feelings surfacing.
The key is talking with your kids about money, from how to budget to the whys of spending decisions. This can help your children make better financial decisions. The financial world gets more and more complicated every day. Don’t send your kids out unprepared. Discussing your financial decisions doesn’t have to mean you are letting them have a say in that decision. It means you are teaching them. And if you run into something you need some help to answer, remember we are here to help.
Be sure to visit our website today or call us at 217-605-8130. Our mission is to help you make more informed decisions to better your financial position and reduce your financial stress. You may also find it helpful to speak with a Certified Financial Planner™ professional.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice.
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