RAISING FINANCIALLY PRUDENT CHILDREN

By Cory Howes

coryBefore I practiced law, I served families and businesses as a financial advisor. Time and again, I’d work with parents who had spent a lifetime saving for purchases and major life events—buying a home, sending children to college, and even their own death expenses—only to worry about how their children would handle money as adults. Now, as an estate attorney, I see this challenge brought to light, as families prepare honestly for their estate needs by identifying spendthrift heirs and devising trusts and other means of preventing these loved ones from squandering their inheritances.

Trusts are great, and there are lots of reasons to use them as estate planning vehicles, but there’s a more sure-fire way to ensure that your values drive your estate planning. You can start early, by teaching your children to be financially prudent. Basically, it’s about teaching them the value of money, and there are several ways to do it.

First, teach them the concept of earning money, versus just giving it to them when they stick their hands out. At a certain age, many children begin to think about an allowance, probably because one of their peers is receiving free money at home. But don’t take the bait. Instead, work out age-appropriate chores that they can do around the home—emptying the dishwasher, taking out the garbage, cleaning bathrooms, etc.—and remind them at the time of payment about what they did to actually earn the money. If you work for your money, why shouldn’t they be able to associate work with money when they take it from you?

Next, teach them to account for their money, whether it’s having a piggy bank and periodically counting the money, or setting up a savings account with them at your bank. Whether you’re using hard tools like piggy banks or online tools to access a bank account, seeing the money and how it accumulates is quite valuable for children. Furthermore, you set a foundation for knowing how much money you have at your disposal, versus what you can or can’t afford. When coupled with the concept of working for their money, having a real sense of what they can spend on things they see (toys!) impacts areas later down the road, such as tendencies to rack up credit card debt on things they can’t afford.

Also, make sure you pass along the love of a good deal. Who doesn’t like getting 20 percent off the regular price, just for waiting a few weeks for that holiday sale, or even getting 30-50 percent off at the end of the season? By avoiding instant gratification in our consumption-driven economy, we keep more of our hard-earned dollars in our own pockets. Don’t be afraid to teach this same value to your children—the value of waiting patiently, especially for the things in life we want, versus those we truly need.

Finally, on that aforementioned savings account: there’s a time for piggy banks (early childhood) and a time for learning how adults operate with their finances. There’s no better way to accomplish teaching mature accounting and investment habits than with a basic savings account in grade school or shortly thereafter. Even though the interest on savings accounts is miniscule right now and should be for the foreseeable future, seeing interest deposits in their accounts can fuel a lifetime passion for investing funds that they aren’t using for basic needs, setting up a better future. Or even better, help them set up an investment account and begin to teach them about investing and compound interest.

A wise man once spoke about the virtues of teaching men to fish versus giving them fish to eat. The same truth applies to money. Apply this truth to your children, and you have a great chance of seeing them act honorably and intentionally as stewards of hard-earned rewards.