Dear Girlfriends,

We are in the midst of the largest transfer of wealth in our nation's history. The "greatest generation" is dying away and being the good savers/investors they were, they're leaving trillions of dollars to their baby boomer heirs. So that leaves me really scratching my head...if they were such great savers, why didn't they pass this legacy on to their children? And if we didn't learn how to step up to the plate and take charge of our own financial security - how will our own kids learn?

I worry about them. Did you know that by the time a girl is seventeen, she'll have been communicated to by a quarter of a million advertisements (specifically directed at her to improve her appearance)? According to Common Sense Media 2003 Research, this is a fact. Fact number two: kids today have unprecedented access to cash. In 2002, Teenage Research Unlimited reported that on average, teens spent $101 a week. OH.MY.GOODNESS. That's 5,252 bucks a year!

So my question is: How do we leave a legacy of good financial stewardship to our children? How do we impart powerful and liberating lessons in money management and fiscal responsibility to them as they grow?

Well, I don't think we wait until they're 30 to start the conversation. If you're into using "teachable moments" with your kiddos, here are a few of our tips and those we've learned from other parents along the way:

BEGIN AT AGE 2:
Introduce the concept of delayed gratification. Prepare yourself now that they will drive you silly, but don't give in. Start this when they're old enough to sit in the shopping cart and I don't care HOW LOUD they scream at Target - just smile sweetly at the mother standing in line behind you and share with her that your child is embracing the concept of delayed gratification.

BEGIN AT AGE 3:
Introduce the concept of giving. Hoarding money is as unhealthy as refusing to take financial responsibility for yourself, so instill the habit of giving. The average 3-year-old will clearly understand the concept of sacrificing a toy for him- or herself in order to buy one for another child in need; as a matter of fact, you'll probably make note of how much they seem to enjoy the act of sacrificial giving . Get them in the habit now of giving of their first earnings in the form of a tithe or offering at weekly services. If your family doesn't attend services, seek out the local SPCA or other organization or causes your family supports. But explain to them what the gift goes toward and why the organization depends on them to help financially.

BEGIN AT AGE 4:
Introduce the concept of pay yourself first. Encourage your child to pay themselves 10-20% of their allowance or earnings before shopping. Children as young as 4 should have three piggy banks - one for their spending, one for their saving and one for their charitable giving. As they get older, eliminate the physical saving bank and help them open a passbook savings account. Now is the time to get them in the routine of stopping by the savings piggy bank before heading to the toy aisle - it will make the drive-thru at the bank second-nature by the time they're 15.

BEGIN AT AGE 7:
Introduce the concept of the 401(k). For every dollar your child saves, match it dollar for dollar. This concept can be grasped by the average 7-year-old as all they need to understand is simple arithmetic but let me tell you - by the time they're teenagers (and eyeing a car or electronic equipment), they will totally embrace this plan! And, there will be no question about how a 401(k) works when they're 25.

ALSO BEGIN AT AGE 7:
Don't introduce credit. See concept introduction, age 2. If you are teaching delayed gratification, you will not be tempted to allow them to "pay you back later". This is a bad habit to start and only introduces the concept of the credit card. Plus, later seems to never arrive.

BEGIN AT AGE 16 or 17:
Introduce the concept of balancing a checkbook. Do this while your teenager is still at home because let me tell you from experience, this can be a nightmare if you're trying to do it long distance after they've headed off to college. Better yet, introduce them to Quicken TM so they can actually see where their money goes in the form of pie charts! Eye opening.

BEGIN AT AGE 18:
Introduce the concept of eating beans. Before they leave for college, explain they will be given a set living allowance and don't make extra little deposits when they run low. WHO'S GOING TO DO THIS WHEN THEY'RE GROWN? THEIR EMPLOYER? HA! One of our favorite college stories about our daughter, Shauna, was when she called home complaining she was running low on money. After a little interrogation by her father, it was determined that she had bought a few items that weren't exactly necessities. How did she make it through the month? Refried beans and tortillas. She was most proud of herself for making it to the end of the month and for developing a meal plan that cost just 28 cents each. (And I was proud of myself for not breaking down and sending more money.)

WHEN THEY'RE ENGAGED:
Introduce the concept of making choices and sacrifices, and managing money as a couple. Let the nearly-weds manage their own wedding budget. Set up a checking account and make ONE deposit based on what you're willing to spend on the wedding. Whatever they spend over the budget, they have to come up with; whatever they save, they get to keep. No time like the present to see how they manage money together. (And a positive side-effect: never a cross word between the bride-elect and her parents. The decisions and negotiations are all up to the nearly-weds.)

WHEN THEY'RE MARRIED:
Offer your experience and counsel. Young married couples are often confused by all things money related - from 401(k)s to buying their first home. Don't insert yourself where you're not appreciated, but offer to share your advice if and when they're interested in learning more. My bet: they'll be interested. Do you think they want to be poor?

Step four in securing your freedom to choose: liberate yourself today from caring financially for your grown children, tomorrow.

Train up a child in the way he should go, even when he is old he will not depart from it. Proverbs 22:6

Leaving more advice than cash,
Ellen

Posted by Ellen on February 27, 2007 11:46 AM  |  Category: Work/Life Balance and the Debit Card