I get more than a few emails asking about how to educate, communicate, and transition children into adulthood with good financial habits.
The big question relating to this topic is often: when do I stop giving my kids money?
As most of you remember, I was interviewed by Geoff Williams from The Huffington Post about this subject a few months ago.
As most of you also know, I write about Old Money families and individuals, people who’ve had wealth and privilege for 3 generations or more. So I wanted to circle back to this subject and cover it in a little more detail as the demand for information (if not answers) remains strong.
Obviously, acquiring and preserving wealth for that period of time (50 to 100 years) means OMG’s are probably doing something right regarding their kids and money.
As I said, I get more than a few emails asking about how to educate, communicate, and transition children into adulthood with good financial habits.
The big question relating to this topic is often: when do I stop giving my kids money?
Before I answer this question, I take the parent or parents back a step to the overall philosophy that underpins the decision-making process. What is that exactly? It includes a few things, but the attitude toward money is the first and main thing.
Money is not a license for your child to be lazy or extravagant: it’s a tool to maximize quality of life and opportunity, and hand something off to the next generation.
Only once that’s established, by example and by having deliberate, focused conversations with children about money, can real informed, constructive decisions about when to stop giving money occur.
So let’s look at the characteristics of these conversations and their outcomes, i.e., the decisions you make about your child and money.
First, there should be a schedule and reasoning behind the decision. Cutting your kids off should not be punitive or abrupt. Parents should discuss it between themselves and then discuss it with their child in a private, emotionally-neutral, distraction-free environment.
Second, every child is different, and every family financial situation is different. Some families can’t support a child after high school or after college. Know where you as a parent are at financially, explain that to your children, and plan with them from there. Other parents may have more resources, more options, and potentially more problems.
I’ll share my personal experience. I’m a writer. My parents had money. They were in a position to be patient and supportive as my career started, given the economic uncertainties of the profession.
They made it clear, however, that laziness and waste were not a part of ‘the deal’. I had to work, commit to my profession, and become financially independent as soon as possible. If I decided writing wasn’t for me and I was going to just get a 9 to 5 job, the help would end, and I’d be on my own.
Note: throughout my life, I’ve consistently spent less overall, even when I was being subsidized by my family, than other people I knew. I drove old cars and wore traditional (often well-worn) clothing. I’ve lived well, but simply, in the typical WASPy tradition. But, it should be noted, I’m not your child.
So, third, you must look at your child objectively and determine what’s going to be the best thing for them in the long term. Most children entering the workforce as adults need the blunt force trauma of living on what they earn each month and facing the consequences of poor planning, or the rewards of saving, investment, and delayed gratification. This curbs conspicuous consumption and any sense of entitlement.
Creative types–with a definite career path and plan–may warrant support, but note that plenty of great writers, artists, and actors have slept on friends’ sofas and missed meals. Hardship can fuel the fire.
Now for the ‘How’.
Be Fair. For most parents, it’s a good idea to give the child a heads up about what is on the horizon. “When you turn 18, you’re going to go to college or be on your own,” is a comment I’ve often heard from parents who want to put a little pep into their teenager’s step and prepare them for the road ahead. They often communicate this to their child during the first year of high school, which gives the young one time to adjust. (When most teenagers hear this, and realize their parents mean it, it tends to pull focus: they start studying harder and choose to attend college.)
Be Realistic. Current economic conditions play a role, to be sure. Job prospects, even for college graduates, can be scarce. I’d suggest letting a college graduate live at home and save money rather than giving them money to pay the rent for an apartment. They’ll want to be independent faster–and get out of the house–as they find their feet. They can (and should) also save money.
Be Smart. In that same vein, I’d encourage parents to pay for their child’s education before giving the child money. The education is an investment in the child. Giving a child money is a stop-gap measure that only temporarily fixes a problem…or prolongs one.
Be Firm. The only hard and fast rule I can say is that giving children money into their adult life without conditions or without a plan is a horrible idea. Few children are able to handle it well. It robs the child of self-reliance, dulls their search for meaning, and cripples self-esteem. Don’t do it.
I’d love to hear everyone’s experiences and perspectives on this. Thanks.
– BGT