Six Ways to Empower Your Family and Your Children

May 23, 2012 - PRLog -- When do you teach your children about money? What if you have a bit more money, or less money, than the average person? What about adult children – should you always be a source of cash when they run into financial trouble?

These questions just illustrate the fact that money is a sensitive and highly personal topic –what is appropriate for one family might not be for another. Some parents, by dint of their experiences, might never want their children to suffer as they did and will spare no expense for them; others are more inclined to make sure their children are self-sufficient before they feel comfortable with the concept of passing on material wealth; still others say they do not want their children to inherit much beyond a small token and to make their own way in the world – think Warren Buffet.

Consider the following pieces of advice when thinking about your children’s financial future and how they will deal with money matters.

1. Educate your children at a young age about the importance of saving and living within one’s means. This can start as early as age four or five with something as simple as a piggy bank. As they get older, you can introduce them to budgets.

2. Let them earn their allowance as they grow up. Make them responsible for the simple things they do as part of the family – keeping their rooms clean, setting the table, taking the garbage out or mowing the law. But also give them the opportunity to earn extra money by assigning them tasks that go above and beyond their duties. This will create a drive for success based on a system where they are monetarily rewarded for hard work and instill more responsibility at a younger age.

3. Share your own money stories. How was your family with money when you were growing up? Did growing up poor make you careful with every aspect of your financial life? Did it create a sense of scarcity and fear around money or did it create a sense that now you have a bit something extra, it should be enjoyed? Ultimately, this will help your children better understand your ways with money and help them shape theirs.

4. Talk to your children about your intentions for your finances and, ultimately, your estate. It is natural to want to shield your child against giving them a sense of wealth – of not wanting them to be a spoiled brat. Some people think "the less they know the better off and more self-reliant they will be". But it is also equally bad to have a child who is totally unprepared for the wealth they inherit one day. And this goes for any amount of money or property. $100k can be just as destructive in the wrong hands – say of a 20-year-old - as a much greater fortune.

5. Set matters up so that money resides in a trust that does not give children full access to more than the income of that trust until they are at least in their 30s. While you might think your kids are all going to grow up to be wonderful human beings, if history has shown us anything, you cannot predict the stupidity of a child in their teens and even early 20s. The vast majority of kids just do not have the mental ability to make smart long term decisions until they are passed these years. And, then, only a portion and leave further distributions for their mid-30s and even late 40s. Give the trustee a degree of latitude on whether or not further distributions are warranted. Keep things relatively flexible and absolutely clear.

6. Don’t enable your children: by this we mean, don’t send money their way every time they get into some kind of financial trouble or worse, whenever they ask for it. While it can be a kind gesture, it can stop your children from ever really standing on their own. It’s a wonderful thing to be able to help with some tight spot here and then – when a child loses a job or has suffered some unfortunate accident. But when the problem keeps occurring, it can become the basis for nothing short of failed adulthood. We’ve heard stories of clients who do not have endless resources that end up supporting all of their adult children year upon year. Set a clear policy as to what the limits of financial support will be and under what circumstances – put it down in writing.

Indeed, our biggest piece of advice is to set clear family policies on all matters financial –boundaries about what you will and will not do for loved ones. If one can determine a set of clear rules, then exceptions will be harder to give. For example, maybe you will lend your children money only in the event they need a down payment on the purchase of their first home – and that the child has to be able to afford the monthly payments P+I plus insurance and taxes before this gift is agreed to.

The goal is ultimately to achieve two simple things: to help children develop a purposeful life and to help give them the tools for self preservation.

Side Bar:
10 Kid Savvy Tips
1. How to save
2. How to keep track of money
3. How to get paid what you are worth
4. How to spend wisely
5. How to talk about money
6. How to live on a budget
7. How to invest
8. How to exercise an entrepreneurial spirit
9. How to handle credit
10. How to use money to change the world

"Raising Financially Fit Kids", author Joline Godfrey