Notes on Parenting

Insights for parenting babies, toddlers, teens, and young adults.

Monday, August 16, 2010

Saving Your Kids' Financial Lives

I just graduated with my bachelor's degree this past spring.  Going through high school and college, I always envied the kids whose parents bought them a brand new car, bought expensive clothes, flew them and their spouse to family vacation – you get the idea.  Although I was very jealous of the financially dependent kids, looking back, I'm grateful for what I learned from being financially independent.   I learned when I first started high school how to save for what I wanted, budget for my expenses, and to live within my means.  Another great benefit: now I have more of a long-term vision where I can see the consequences of my financial decisions. 

A huge problem among young adults, especially in my generation, is that they start thinking that once they fly the coop they should still be able to live like they did when they lived with their parents; they often expect to have a great car, the latest and greatest electronics, a well-furnished condo, the latest fashions – all the things their parents worked their entire lives to be able to afford.

Next thing they know, they are up to their eyeballs in student loans and credit card debt, turning to their parents for a bail-out. And the most incredible thing that I will never understand is THEY DO IT!  Some kids' parents bail them out over and over again!  Some long-term effects of these terrible spending habits include: (1) a lifetime of debt, (2) strained –  and very often failed – marriages, and (3) bankruptcy.  You might think that this is just an extreme example, but you would be surprised at how often this happens.

Don't worry, you can help your kids avoid financial disaster.   Here are a few principles to begin teaching at a young age:

1. Teach your kids the value of work.  They need to know that money comes from work.  Kids these days (my generation included) are living in the Age of Entitlement – they believe that they deserve things.  When my mom refused to buy video games for my brother, he always used to say, "Mom, most kids' parents buy them like fifty games."(I'm sure none of you have ever heard that one before!)  He felt he deserved what other kids had.  Kids need to know that they can work to earn what they want.

2. Teach them to set goals.  Goals are essentially the underlying principle of a budget.  As you teach your kids to set goals to earn enough money for their wants, help them understand that in order to reach their goal, they will need to give up some of the things they want in order to get what they want most.  Help them save a certain percentage of their earnings toward one of their goals.

3. Teach kids financial literacy.
  When age appropriate, get your child a bank account and teach them how to make deposits when they earn money.   Help them understand what a savings account, withdrawal, and deposit are. Teach how compounding interest works – if they keep their money in the bank, it grows.  When they get older, get them a checking account (and teach how to balance a checkbook), and eventually a credit card.

I'm Jenny Willardson from A Young Mom's Guide to Motherhood, Money, & Marriage, and I'm excited to be a new guest author on Notes on Parenting!  Look for me every 1st and 3rd Mondays of each month for more advice on family finances.



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