Thoughts on Raising Financially Responsible Children

You’ve likely read about how an “affluenza” defense kept 16-year-old Ethan Couch, a drunk driver who killed four pedestrians and severely injured many others, out of prison. The district attorney sought a penalty of 20 years behind bars. However, Couch received the surprisingly lenient sentence of 10 years’ probation after his defense team successfully argued that the teen didn’t fully appreciate the consequences of his actions due to his privileged upbringing. The judge also ordered the Texas teen into a rehabilitation program, for which his family will pay. However, the California treatment facility has a reported price tag of $450,000 a year, further convincing the public that the spoiled teenager’s parents bought his way out of jail.

The book, Affluenza: The All-Consuming Epidemic, defines “affluenza” (the combining of “affluence” and “influenza”) as a “painful, contagious, socially transmitted condition of overload, debt, anxiety and waste resulting from the dogged pursuit of more.” Although the affluenza defense kept Couch out of jail, the notion that the entitled teen did not understand the consequences of his actions has sparked widespread outrage. Prosecutors have asked the judge to incarcerate Couch on lesser charges. The families of those killed and injured in the accident are pursuing civil suits. Meanwhile, Texas’ Senate committee on criminal justice is studying sentencing in such cases. And The Los Angeles Times recently reported that California is working to enact a law that would block the use of the affluenza defense.

For me, Couch’s story highlights the great responsibility families have to educate their children, both to understand the consequences of bad behavior and, more importantly, to accept their responsibility to make positive contributions to society.  As President John F. Kennedy said in January 1961, referring to one of Jesus’ parables in the New Testament Gospels, “For of those to whom much is given, much is required.”

Clients across all wealth levels often ask for my thoughts on how they can teach their children, who receive so much, to be financially responsible and charitable. Naturally, each family is different, but I have some general advice for all families:

• Talk about money. Discussing money with their children provokes anxiety in many parents. They wonder how much detail they should share and whether their children will then share the family’s personal information with their friends. In fact, many families experience a frustrating, often paralyzing, Catch 22: Reveal too much, and the kids want you to spend more. Keep too much to yourself, and the kids may unnecessarily worry about money.  Bottom line: details of the family’s finances should not be kept a total secret. Information forms the foundation for kids to develop a healthy relationship with money. So parents need to ascertain what level of detail they are comfortable sharing.

• Teach age-appropriate money skills. Kids need contact with money in order to feel a connection to it. In the elementary years, you can supplement the basic math skills your child learns in school by having her count out and pay for her own small purchases. Think about the ice cream truck, for example. If you give an allowance and your child wants to make a purchase you are not willing to finance, have him save up and make the purchase with his own money. In the teenage years, you can increase the allowance and have your children pay out of their own pocket for additional personal expenses such as school lunch or back-to-school clothes.

The important thing, so difficult in our age of “helicopter” parents, is to allow children to make mistakes and understand the consequences. That is, if your child feels the pain of over-paying for a pair of jeans because he refused to wait for the store’s sale, perhaps he will be more motivated to shop around for future purchases. Also, introduce the concept of credit during the high school years, before your children find their college mailbox flooded with credit card offers.

• Adopt some version of “save, spend, and share.” Once your children begin earning money, introduce the concept of dividing their money into three pots: save, spend, and share. If they commit to saving a portion of every check during their high school and college years, your children will have a great head start on the all-important emergency account that’s so necessary when they move out on their own. They might also consider investing in a Roth IRA. And while their earnings can help your children feel the pride of making purchases on their own, you can model that it can be equally rewarding to share with others.

Plenty of books offer additional advice on raising financially responsible children. Notably, in his just-released book Strangers in Paradise: How Families Adapt to Wealth Across Generations, James Grubman, Ph.D. offers new insight into the challenges of raising financially responsible children. In his view, problems arise when the wealth acquirers who grew up middle class or poor and “immigrate” to the “Land of the Wealth” must raise children who are “native” to that land. By illuminating the nature of the different worlds of parents and their children, Strangers in Paradise offers a roadmap for families to integrate their new wealth and use it wisely to further their shared dreams, values, and aspirations. Other helpful books include:

Finally, the National Endowment for Financial Education offers an array of terrific teaching resources for parents. And, of course, you should discuss your unique situation with your financial advisor if you have additional questions or concerns.

Leave a Reply

Your email address will not be published. Required fields are marked *