Raising Financially Responsible Children

Clients across all wealth levels often ask for my thoughts on how they can raise financially responsible children.  Here are some things to consider:

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.

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