One of my earliest memories involves a simple thing that each of us probably does several times a day, but which in this case had a significant impact.
When I was 4 years old, I flipped a light switch in my home.
Nothing happened.
That’s the moment I learned about money and bills, and that if you miss your monthly payment to the power company that previously reliable light switch will stop performing its magic.
It was a tough lesson for a 4-year-old, but clearly it stuck with me and helped me understand that life isn’t always easy and that you need to work hard if you hope to be successful and achieve the American dream.
But as an adult who did just that, becoming a tax attorney and certified financial planner, I was faced with this difficult question: Once you’ve risen from a hardscrabble upbringing and gained financial success, how do you pass the traits that helped get you there – hard work, accountability, passion and discipline – on to your children?
After all, the natural inclination is to give them all the things you never had – and to shield them from the worries you experienced growing up. But that won’t help them long term.
Certainly, you can’t duplicate your humble beginnings for them. But you can teach your kids the skills they’ll need when they’re making their own way in the world.
Here are just a few ways to help fortunate kids understand finances:
- Make them budget their money. Give them weekly allowances to cover their expenses so they must budget everything for themselves. Set a limit and stick with it. Make them understand that mom and dad aren’t going to bail them out if they are a quarter short on a toy they want.
- Experiment with delayed gratification. Remember the old Stanford University “marshmallow experiments” from the 1960s and ‘70s? A child was offered a choice between one small but immediate reward (usually a marshmallow) or two rewards if he or she could wait until the tester came back after about 15 minutes. In follow-up studies, the researchers found those who could wait longer tended to have better life outcomes, as measured by SAT scores, body mass index and educational success.
- Don’t keep the kids in the dark. Children often are unaware of all the unseen expenses that go into running a household. Make sure they know there’s a cost for electricity, water, cable and home maintenance.
- Emphasize the difference between needs and wants. How often have you heard your child say, “But I need those jeans!” There’s a big difference between wanting a designer label and needing new pants. Tell your teen you’ll give her a reasonable amount of money to buy the jeans – but if she requires more for what she wants, it’s on her. It’s amazing how quickly kids change their mind about needing something when they’re paying for it.
- Work it out with a job. Your children may not need or want to work, but a job can teach a lot about having a solid work ethic, the importance of getting a good education and competition in the marketplace. Volunteering can have similar benefits.
Parents want to give their children every advantage, and that’s just what you’re doing if you prepare them to better deal with real-world financial decisions.
A little tough love now will prevent an unwelcome sense of entitlement later and keep them out from under a cloud of debt when they’re older.
Finding the right balance is the key to providing a more comfortable life for your children without quenching that inner drive that we all are born with to make something of ourselves – something that cannot just be handed to you.
Rebecca Walser is a licensed tax attorney and certified financial planner who specializes in working with high net worth individuals, families and businesses at Walser Wealth (www.walserwealth.com). She earned her juris doctor degree from the University of Florida and her masters of law degree in taxation from New York University.