As a parent, have you ever thought, ‘If I had the financial information I have now, I would not have made those mistakes. How can I make sure this doesn’t happen to my kids?’
Children need strong boundaries to thrive. They need to know their limits for their own security. Financial matters are no different. Take the recent economic downturn, for example. Teachers reported seeing more stressed kids and outbursts at school related to the tension they felt at home. Having conversations with your kids about your financial priorities and situation should happen before the economy goes sour again. If they understand that you, the parent, are in control they can block out the noise from the media and the rest of the country. So… how do you show them that you’re in control and set them up for financial success?
Start by deciding as parents what financial destiny you would like to have. Do you want to send the kids to college without loans? Do you want to take a vacation every year? Would you like to be able to give an inheritance to your children after you pass away? Do you want to have a paid for house so that you can finally start a family restaurant? Whatever the destiny, you have to create goals with actions to reach them. Check out this example:
Goal #1: The Smith family will eliminate $3,850 in debt by January 1st, 2011.
- Write down debts or use the CWM debt snowball spreadsheet.
- Cut monthly expenses by $250 a month (mom and dad).
- Earn $250 more each month through mowing lawns (high school son, Jake).
- Set up popsicle/hot chocolate stand in the yard (5th grader, Lucy).
Show the kids your goal and then engage them in deciding on the actions to meet the goals. Explain to them why what you’re doing is important and make sure they see you follow through. Hold each other accountable for your actions and set a strong example as a parent. Don’t go buy a new purse and then get mad at “Jake” for procrastinating on mowing lawns.
Continue making goals and keep a running record of them prominently displayed in the house. Don’t forget to celebrate your achievements with a pizza night, family movie night, or something else small that won’t derail your plans.
Once you’ve had the conversation about family goals, you can start showing the kids how to best allocate the money they earn so that it’s doing the most good for today and the future. A common model is 10% of the gross is automatically given as a tithe or to charity, 10% is automatically saved/invested, the rest pays for bills/expenses and anything left over is for discretionary spending on such items as eating out, entertainment, etc.
Be sure to continue reinforcing your goals and priorities at every financial decision you encounter. Remind the kids of your goals when you decide not to buy the expensive clothes or why they don’t get a new toy each time you go to Wal-Mart. These conversations are also an excellent way to reinforce needs vs. wants.
As much as children trust their peers for guidance, they crave the foundation from their family first. Seeing mom and dad living out the values they preach is an excellent way for them to feel grounded. Children don’t have a grasp of how much money it takes to create the lifestyle most of us enjoy. Having a firm financial foundation will help their work ethic and allow them to make smart choices later in life.
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John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.