The Wall Street Journal recently asked to speak with me for a report about the steps parents can take to teach their kids the value of money and help them achieve financial freedom.
As the report makes clear, we provide guidance to clients on this subject when asked — and we do so because we have, indeed, seen how our clients’ own plans for retirement and legacy giving can be negatively impacted and how familial conflicts arise when children remain financially tethered to their parents for too much and for too long. But oh, do I get their desires to be helpful. My wife and I also want the best for our children — and we’ll do anything for them.
So, where are we parents to draw the lines with our financial giving — which really is also an expression of our love for our kids? And are these hard and fast lines that can’t be moved? Are they determined by our children’s ages? Are they determined by the nature of the expense, such as education (and is that undergraduate versus graduate school?), housing, transportation or their own eventual retirement years? These days, such questions loom especially large because, as the WSJ notes, “the rising costs of housing, health care and other essentials has been outpacing entry-level salaries in recent years.”
I wish I had easy answers — but I don’t. Every family is different, every circumstance unique, and Cardan Capital Partners is here to provide the focused and individualized analysis and financial planning every family needs. However, I do have some general ideas about how parents can help their children know the value a dollar as it relates to the pride and joy found in doing good work and investing, saving and spending well.
Start early — and focus on contentment. Whether they’re 2 years old or 22 years old, it’s important for parents to teach their children about how to earn, spend and give money in ways they find deeply satisfying. These times of teaching are great opportunities for parents and children to bond. Help little ones see their savings by giving them old-fashioned, clear jars or piggy banks. Show tweeners how to comparison shop and avoid impulse buying. Help teens save for a car. Encourage your college student to find a part-time job. All along the way, parents can help their children find contentment in their financial circumstance. No, that car may not be the newest on the block, but it gets from Point A to Point B just fine. And yes, you, too, can have a memorable time at senior prom without needing to rack up credit card debt.
Help your child set up banking accounts. Banks differ in their requirements for setting up savings and checking accounts for a child — but opening an account is a great way to launch your child’s lifelong, financial journey. If you’re in the Denver area, check out the Young Americans Center for Financial Education, which is specifically designed for people 21 and younger.
Teach the basics of budgeting — and use some of your own household expenses and financial goals to serve as examples. Give your child a sense of how much it costs each week to fuel the car to travel to work and school, to purchase enough groceries to comfortably feed everyone and to treat everyone to a fun time at the movie theater on a Friday night. When children can internalize the costs of their necessities and wants, they often better understand the sacrifices their parents make to provide for them.
Teach the basics of investing. This is certainly where Cardan Capital Partners could help — but we also recommend Personal Finance for Teens, a good book parents and children can read together to talk through the basics of investing.
Require teenagers to earn their spending money. This is about so much more than teaching money-management skills. I find that when young people have a part-time job, they build confidence, work ethic and a greater senses of responsibility and independence. They also tend to gain new appreciation for the education and effort required to earn the money needed to afford the lifestyle they desire.
Check your motives for providing financial assistance to your young adult. We’re talking about helping young people achieve financial freedom, right? Chances are good they will need to make their own mistakes to learn some important lessons. As tempting as it is to help our children when they encounter a financial problem, it’s not necessarily a good idea to help them cover the costs, much less bail them out entirely.
Help your young adult be realistic. The typical college graduate who is truly out on his own isn’t going to be able to afford his parents’ lifestyle. He may have to move to a smaller — make that much smaller — market where housing is more affordable and other costs of living are more in line with his paycheck. He may have to settle on a one-bedroom or studio apartment and get used to dining in on soups, salads and sandwiches. There is contentment to be found in these early stages of adulthood, too.
Matt Papazian is a co-founder of Cardan Capital Partners — and father of two children who still have a lot to learn. He welcomes hearing from you.