Raising Financially Savvy Kids

Monopoly MoneyDuring the 1990s it may have seemed like money grew on trees. We had a robust market where investment portfolios grew significantly and a lot of people used their home equity as a line of credit. In the last 10 years this has changed. Just as it’s important to talk to your aging parents about their financial situation it’s equally as important to include your kids in discussions about the family finances.  Naturally, there are opportunities to engage with both young children and adult children but these conversations will look vastly different.

It’s never too early to have a family discussion about budgeting for both the necessities and the nice to haves. I encourage the idea of providing an allowance for a specific set of chores at a relatively young age. This provides an opportunity to teach money management, shared responsibility and consequences, each important life lessons on their own. Give young kids the opportunity to help plan the family grocery budget or plan a family vacation within a set budget. It’s a great lesson and a reminder that money doesn’t grow on trees and that mom and dad work hard to provide for the family. Working takes time away from the family unit and comes at a cost.

This is a great practice no matter what the family budget is. Kids that come from families that never discuss money or put spending limits in place are often the first kids to get into financial trouble as young adults. They know that mom and dad are there to bail them out and provide a safety net. That IS what families are for but I encourage you to give some thought to raising savvy financial citizens from the start.

The financial crisis is impacting young people at an alarming rate. Students are getting credit card offers at very young ages, often before they have jobs or a source of repayment. College students are utilizing loans and credit cards to help pay for the rising cost of a college education. Credit can be a great option to assist families with college costs but without a strong discipline and an understanding of the financial obligation this can be financial crisis in the making. Talking with your kids about managing credit responsibly and giving them the opportunity to do so while under your guidance can be a great life lesson. A wrecked credit rating can take years to repair.

Speaking about college kids, give some consideration to how much you expect  them to earn and contribute to their own education expenses. It’s important that both parents are in agreement on this (more on that later). If you plan for your teenager to drive will you expect them to contribute to these expenses? Again this is an area that both parents should be in lock step on. I’d recommend engaging in these conversations when your kids are in their pre-teen years. This allows time to set proper expectations and gear their school work in the direction that will help prepare them to face these challenges with the necessary skill sets.

One final note to consider is what happens when they come back home? This is happening more and more in the current economic reality. Jobs are scarce for college graduates and the job search is getting longer and longer for the lucky few. Communicating with adult children can provide a very unique set of challenges. You want to treat them like the adults they have become but sometimes it’s difficult to let go and cut the cord. The important thing here is that both parents or responsible parties are in agreement. What would you do if the kids moved back home? Would they be responsible for rent? Would you set a deadline?

This is the perfect segue into our next segment on talking to your significant other about money. It’s always easier to come to agreement when you are not in the midst of a financial crisis. As part of the family planning discussion I encourage you to explore your expectations and financial commitment to your children. This is an area that many couples struggle with.

If you missed the first two parts of this series, click here.

photo by: John-Morgan

About Mary Jo Lyons

Mary Jo Lyons, CFP® is a registered assitant with extensive expertise in designing financial strategies to help clients achieve their financial goals. Have a financial question? ASK MARY JO!

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