Over the years I’ve witnessed the offspring of many friends and relatives display an inability to handle money. The number of youngsters I’ve known that grew to adulthood without the ability to make regular payments on their home mortgage, pay their credit card bills without incurring interest and penalties, or even balance a checkbook, is frightening.
Whatever praise or criticism you may direct at the American public school system, one thing must be acknowledged: The handling of personal finances is not a subject to which much attention is devoted. Whatever the average American knows about monetary matters did not come from the classroom. This is understandable, of course, if only because the typical classroom teacher is equally mystified by the world of money. It’s for this reason I’m convinced that a child’s indoctrination into financial matters must be rooted at home.
I’d like to offer the following suggestions on how to instill a sense of financial responsibility in your children.
- First and foremost, start early. There is no more accurate truth than the ancient adage: As the twig is bent, so grows the tree. As soon as your progeny develop an awareness of what is going on around them, they are entitled to instruction and guidance on the realities of the financial world. Admittedly, the approach to your 4-year-old will be far different than to your teenager. Nonetheless, if properly presented, both will acquire skills that will accompany them over a lifetime.
- Mean what you say. Whether or not you believe it, your children really pay attention to what you say and do. As the first authority that normally appears, a parent becomes a model on which the child fixates. It’s important to realize, however, that your counsel must be consistent for the lessons to be learned. If messages are contradictory, they will be received as mixed signals.
If, for example, parents proclaim the importance of living within their financial means while simultaneously indebting themselves through purchases they cannot afford, it will not go undetected by the children nor induce them to pursue habits of thrift. The only way that sound financial values can be transmitted from one generation to the next is by a systematic and continuous program that reinforces these values. Only through precept and example will sound habits be engrained.
- Don’t encourage unattainable goals. Well-meaning parents, who urge their children to aim for the stars while ignoring reality, do them no service. One typical example is the encouragement given to attend a prestigious university when family funds are unavailable. Over the past several years I’ve fielded many a letter from these children, themselves well into parenthood and overburdened with tens of thousands of dollars in unpaid student loans. In most cases, the grandiose plans envisioned never came to pass. Whatever added luster a high-priced school is designed to impart often proves to be illusory. Reasonably priced educational institutions are available and every bit as suitable.
The point I want to stress is that realistic and attainable goals, taking into consideration the inherent abilities and limitations of each offspring, must be the basis on which guidance is given. Despite the prevalent attitude in modern society that everyone is endowed to achieve at any level, the wise parent will recognize reality and seek to counsel the child accordingly.
- Avoid spontaneous gift-giving. Though generosity may seem a fine quality to exhibit, it can become inhibiting. One of the characteristics that builds financial self-confidence is an ability to establish and function on a budget. Whatever flow of income your offspring regularly receive, whether through allowance or remunerations of one sort or another, they must be given the opportunity to develop competence in the use of these funds. Sensible spending based on predictable income is mastered through practice. Don’t throw a monkey wrench into the works by impulsively dumping extra money into their hands.
- Don’t fight against human nature. Over time I’ve seen a lot of strange behavior that ignored human nature. One of the more bizarre instances concerned an indolent young woman, who over many years repeatedly received instruction from her wealthy father on how to balance her checkbook. She habitually issued checks whenever she chose. When the account balance fell below zero, the bank phoned her father who deposited more money in the account. Somehow her father never understood that his instruction sessions ignored human nature; the checkbook balance held no significance for her. What’s the purpose of this observation? It’s to stress the importance of parents’ awareness of what is important to their offspring. Human nature dictates that all actions actually have meaning.
- Don’t try to direct your child’s discretionary spending. If a child is to learn about money, he or she must sense some meaningful connection to it. Though it’s the parents’ responsibility to advise their offspring on sensible spending and saving, they must not dictate how the youths handle their earnings. The decision on how money received is to be spent—or horded, if that’s the choice—is that of the recipient. Most importantly, don’t habitually come to the rescue. When mistakes are made, the repercussions are the most valuable part of the learning process. Managing finances is a lifelong challenge, and the sooner experienced, the better.