Like it or not, we’re all involved in running the “family business.” We worry that our parents might outlive their retirement savings. We’re comforted by the thought that family members would probably bail us out if we got into money trouble. We strive to help our children financially, and we’d like to bequeath them at least part of our nest egg. In short, our family is our asset, liability, and legacy. Now here’s the contention: It’s time to build this notion into the way we manage our money.
Here are just some of the reasons why:
If your children grow up to be financial deadbeats, you may likely rise to the rescue. Indeed, your children could turn out to be your greatest financial liability.
Don’t want your adult children swimming in credit card debt, missing mortgage payments, and constantly asking you for money? Your best bet is to make sure problems never arise by raising money-savvy children.
That’s trickier than it seems. Children grow up spending their parent’s money, so it’s almost inevitable that they will have a skewed financial outlook. After all, for children, all purchases are free, so why should they fret about the price tag or control their desires?
Make your children feel like they’re spending their own money. Give them a candy allowance when they are younger and a clothing allowance when they are teenagers, and insist they live within this budget. This way, instead of you constantly saying “no” to your children, they will learn to say “no” to themselves.
Once your children get into the work force, you want them to get into the “virtuous financial cycle” where they are steadily building wealth.
They will become able to own their home rather than renting, buy their cars rather than leasing, fully fund their 401(k) plan and their individual retirement accounts each year, and never carry a credit card balance.
The sooner your 20-something children get into this virtuous cycle, the easier it will be for them to meet their goals and less of a financial drain on you. To that end, encourage your children with your words and with your fine example.
A few financial incentives may also help. Tell your adult children if they scrounge together a house payment, you will kick in some additional dollars, or you could offer to subsidize their 401(k) contribution at 50 cents on the dollar.
This doesn’t mean you intend to fund their retirement instead of your own, but getting them started as investors sure seems like a smart idea.
By Robert J. Rall, Certified Financial PlannerTM, Rall Capital Management
Contact Rall Capital Management
Call (321) 452-1251 or visit RallCapital.com