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
Fantastic article! We are paying for our sons college education, as well as his medical and dental. Our son stills lives with us as he attends college, it’s cost effective. Our son also has a job and pays rent. We require him to save his money, invest, and plan for the future. He has done so and continues to do so. He has one year left in school and is planning on working for the government once he graduates. We started him on chores when he was 5, his pocket money was money he earned. Our policy was that half of his earnings went in to his savings account, the other half his wallet. He has grown into a lovely young man. We are truly blessed. Jane Keller
Good rules, Jane. Well done. – BGT
My parents very clearly communicated that we would go to university (college in the USA) and would live at home as we lived within a 20 minute walk of the 2 universities. If we chose to move out, or wanted to work, then we would be on our own, they would just pay for our education. I think it turned out quite well, the itch to be out on your own means that you make an attempt to succeed at school and hopefully land a good position out of school. It was the same way with my grandparents and my parents and each previous generation. That’s not to say that they won’t give me gifts (down payment if it makes sense from an investment return point of view) but I do not expect anything.
On the other hand I have friends who’s parents paid for a car, an apartment, and spending money while they were in university which led to much more partying and less focus. I know which way I’m going with my children.
Jon
Thanks for sharing, Jon. Sounds like you’ve got some great parents. – BGT
Good post, Byron. My husband and I are both OMGs, and the way most members of our extended family do it, it comes down to this: your education will be taken care of and you will have a comfortable retirement. For the forty or so years in between, you’re on your own. (I’m oversimplifying but that’s the the basic idea.)
In my case the experience of living paycheck to paycheck in my twenties taught me frugality and the importance of budgeting. We now live frugal, simple but comfortable lives. We have everything we need and want, although that’s partly because we don’t want very much.
It’s nice knowing that the money is there if we need it, and the sense of security that it provides is worth more to us than anything we could ever buy. I agree with your “blunt force trauma” theory. If you grew up in an old money family, it’s important to face the harsh reality of surviving on your own for a while.
Now that I’m, ahem, a little older, I fully appreciate how being raised with traditional old money values, habits and priorities can help see you through having very little money, having a lot of money, or anything in between. The sooner your children learn to live within (or even better, below) their means, the happier they will be in the long run.
Thank you for sharing, Amy. Great family philosophy. – BGT
From common sense (so one hopes, wink), not experience:
Don’t stop before teaching them how they can become financially independent: which is not just through a degree, hard work and saving — for most folks that’s modern slavery. By selling one’s time, one keeps facing a barrier, except if one’s the proverbial lawyer in the Magic Circle.
Robert Kiyosaki simplifies: “three green houses, one hotel”.
In a recent interview with the BBC, one British self-made millionaire shared how he got started with a small dilapidated house be bought with 5.000£ he got from his grandmother.
Granted, such stories need to be taken with a grain of salt, as one needs luck as well.
Still, for parents who can afford it, it could be a good strategy to help children with a small investment before closing the money tap. Or, as suggested above, to let them live in the house for a given period, on the condition of saving money for such purpose.
Excellent advice, JL. Much appreciated. – BGT
Our oldest opted to move out when she was 18. She found a job as an au pair in France and moved there for 18 months. After long, hard hours working for the equivalent of minimum wage, she decided college was a better path. This time she was on her own. We allowed her to live at home rent free and provided food, but everything else including tuition was on her. She found a way to get through college and graduate debt free by working part time and earning scholarships. Upon graduation, we allowed her 12 months to find a job and her own apartment. It took her less than 6 months. It is amazing how quickly the school of hard knocks matures a person.
Good for you, Janet. Well done. You gave your daughter the room to grow and the rules to learn by. Thanks. – BGT
Yes and she is now in her mid-thirties and a lovely young women. She just used 1/2 her vacation hours for the year to stay with her grandfather following hip replacement to help care for him.
Wonderful article, Byron, and so timely for the many recent news articles on student loan debt. Like many of the others who posted, we gave our college bound son a choice. My husband works for a local, highly regarded, private university. His benefits include discounted tuition at the school or free tuition at another school in the consortium. When he was a sophomore, we told our son could either stay home and be a commuter at my husband’s school or attend another school and live on campus. If he stayed home, he would get free room and board for four years provided he kept his grades high enough to get into vet school. If he lived on campus, he would have to come up with the money for room and board, but his tuition would be free. He chose to stay at home, and received enough scholarship monies and his father’s discount to completely pay for his tuition and fees for four years, plus he just got a job that will pay for his car insurance, commuter meal plans, books and pocket money. In four years when he graduates, he will have no undergraduate loans, and he is thinking ahead to setting up a special savings account so he can funnel at least half of his paycheck for future expenses or vet school. By making these decisions, once he finishes his undergraduate degree, he will have options available to him that he would not otherwise have.
Well done, Kellie. Thank you for sharing. – BGT
A very relevant post. I have reblogged this on Englishtutorialedu.com. Thanks for the post.
Thank you, Sumita! Much appreciated. – BGT