Your
children are grown, but they may still be kids when it comes to
managing their money. Perhaps they have returned home to live with
you because they can’t afford to live on their own, or they’re
living on their own but are struggling financially because of poor
money-management skills. So how do you teach your children the
financial facts of life now that they’re all grown up? Here are a
few tips from financial planners, psychologists and other
experts.
Talk about it. One reason children often don’t learn
what they need to learn about finances when growing up is that money
is a taboo topic in America. And when parents do talk about money
with their kids, it’s often a one-time lecture on the financial
birds and bees just before they graduate from high school.
Consequently, the children miss the important “behind the scenes”
finances of the household.
To make up for missed
opportunities, listen to their concerns and problems, and tell them
about how you personally dealt with similar financial challenges.
Talk about your financial mistakes and your tough financial times,
perhaps when you were starting out, just as they are, and had only
entry-level jobs that barely covered rent and food, and couldn’t buy
“luxuries” like a television or new clothes. Sure, they’ll roll
their eyes, but they’re listening.
Wealthy families sometimes
write out family mission statements that provide a guide for future
beneficiaries regarding the founder’s money values, expectations and
responsibilities.
Show financial tough love. Sometimes, say
experts, you just have to cut the financial umbilical cord. Perhaps
they’re living at home “temporarily” or you’re giving them some
financial support while they’re going through a rough stretch due to
a job loss or divorce. There is nothing wrong with that. But if
they’re abusing your financial support—say they’ve been living at
home for years!—it may be time to say enough.
Don’t
necessarily do it cold turkey, however. Make a plan for weaning them
off your support, tell them the plan—and stick to it.
Bring
in a professional advisor. A professional financial advisor can help
in one of two ways. First, the planner may work directly with your
child as a client to help them organize and improve their financial
situation, and most important, teach them some financial basics such
as budgeting and investing. Your child may be more open to listening
to an outside professional than to you. If your child can’t afford
to pay for the planner, perhaps you can help them
out.
Second, you might have your own planner work with you
and your child. One planner worked with a couple and their unmarried
adult daughter in her early thirties who was still living at home.
The planner helped them work out a budget designed to instill
self-sufficiency for her within four years, and it
succeeded.
Use trusts to teach. The children of more
comfortable or wealthier families are just as vulnerable to
financial insecurities and financial illiteracy—sometimes more so
because they never had to learn the financial facts of life growing
up. Some families establish trusts for their children in part to
teach them financial wisdom. For example, initially have the child
meet periodically with the trustee (which may be you) and the
trust’s financial advisor, if you have one, to learn how the trust
is being managed and why certain assets are invested in certain
ways. Because it is the child’s money that’s being managed, he or
she should be more willing to listen.
Later, you can have the
adult child assume co-trustee duties so they can help make actual
decisions. Eventually, the child can graduate to becoming sole
trustee.
Incentive trusts, designed to promote certain
beneficiary behavior by attaching strings to the trust
distributions, can be another way to instill financial lessons or
behavior. For example, some family trusts say a child can receive
financial distributions only if he or she earns a certain amount of
money on their own.
You might do the same thing with a
business—require the child to work on their own for other employers
before allowing them to work in your business and perhaps eventually
inherit the business.
Teach them through charity. Wealthier
families often involve their children in their charitable projects,
such as a private or community foundation. This can teach money
values and management skills.
-30-