Your Children & Money

Merrill Lynch recently offered a free webinar entitled “Your Children and Money: Lifelong Tips for Talking About an Essential Topic.” The panel included experts in psychology and finance and they offered lots of really helpful tips on topics ranging from allowance to financially supporting your 20-something year old children. Here are a few of them:

Allowance

• You can start an allowance “program” as early as 5 years old. It helps to teach your children that allowance should be allocated to three different categories: save, spend, and share.
• Allowance should be consistent whether its weekly, bi-weekly, monthly, etc. Make it the child’s responsibility to come to you for collection; if they miss the collection window, then they’re out of luck for that week/month. It’s a good lesson in punctuality and responsibility.
• You should separate household chores from the distribution of allowance. If you reward your children for doing chores that will eventually become required activities of their daily adult lives (like taking out the trash or doing laundry), it can actually inhibit them from performing these tasks later in life since there’s no reward in the real world.
• Use allowance to teach your children that funds are limited. Ex: “you have $XX, so you can afford that toy now, or you can save up for a bike in 6 months.”

Saving & Delayed Gratification

• A great way to teach children to save is to get goal-oriented. What is it that they deeply want? Help them determine how long it will take to save that much money. Get visual – post a picture of that goal on their piggy bank, in their bedroom, or even the kitchen refrigerator.
• Matching your children’s savings can be a great tool to teach good saving habits. It basically mocks an employer’s 401k matching program. An example would be to match up to $10 of your child’s savings per month.
• Studies show that the happiest people are those who have learned to balance instant and delayed gratification properly.

Money & Young Adult Children

• Assisting with big purchases – Let’s take a car for example. If you have the means, help to fund the purchase of the car, but make it clear that any bills associated with ownership of that car will be your child’s responsibility. This would include gas, insurance, maintenance, etc. This teaches your kids that what may seem like a one-time purchase is in truth a long-term investment.
• Higher Education – It’s best to be honest with your young adult children about what you can and will pay for with regard to college education. It’s difficult for a 16 year old to understand what $50,000 is, so it can help to put things into perspective by illustrating a picture for them. An example would be to say “We will contribute $XX to your college education. That would either pay for XYZ State University in full…OR 2 years at ABC Private College. The rest would have to be taken out in loan which could take up to XX years to pay off.”
• Financial Support of 20-Somethings – Ask yourself this question: Are you empowering or enabling? If the answer is empowering, then go ahead and help if you can. If you’re enabling, do NOT.

Final thoughts: There’s a negative stigma around talking about money. Even with your family. In reality, it’s important to talk to your children about money (in an age-appropriate manner) so that you can begin teaching them crucial life lessons about saving, investing, donating, loaning, etc.