Will Your Children Ruin Your Retirement (Part 2)

Last week we took a depressive look at the end-game of runaway financial co-dependence between parents and adult children.

I promised we would follow up with some strategies you can use at every stage of life to prepare parent and child alike for the financial separation that should come with adulthood.

As a parent, you should have a lifetime goal of helping your children learn the twin concepts of freedom of choice and freedom from consequences.

As parents, we spend much of our time in a child’s early years simply protecting them from consequences they have no capacity to comprehend. We do not let them play in the street, ride in the car standing up, talk to strangers, touch the hot stove or stay up as late as they want to.

Yet in order to reach maturity, a child must gradually make the connection between the choices they make and the consequences they experience. And on many fronts, this transition takes place gradually and naturally. I no longer remind any of my children to not touch the stove. Just this week, I waited in the driveway for one of my (adult!) children in the back seat to buckle their seat belt before I would pull out onto the street. I think it’s been ten years since I last did that. 

Unfortunately, this natural transition in the learning process is often stunted when it comes to money. Many parents fail to allow their child to experience the link between financial choices and financial consequences. 

These parents are well intentioned. They don’t want their child to get hurt, be disappointed or miss out on an opportunity, so they keep coughing up dollars. 

What these compassionate parents fail to understand is that delaying a child’s experiencing consequences is like delaying the payments on a high interest credit card – the eventual cost they (and you!) will pay just keeps growing exponentially.

They are late to the game in learning how to wisely manage their money. And if they’ve learned how to tug at your heartstrings, they may talk you into “lending” them money you can’t afford to lose.

So how do you teach your child that their choices are inextricably linked to the consequences they will experience? Here are four steps you can use over and over again at various ages and stages of your child’s life:

Step one: Give them an allowance and a budget at the same time. When each of our children turned five, my wife gave each one three jars, labeled: spending, saving and giving. Each child was given ten dimes per week (any amount will work!). They physically put one dime in the giving jar, two in the saving jar and seven in the spending jar. Over time, they learned that if they would refrain from spending all the dimes in their spending jar each week, the treats they could buy were bigger and better.

When our children hit their teens, we gave them a certain amount of money monthly that they had to use to buy their clothes, personal care items and have some spending money left over. 

Step two: Give them freedom to choose. Let them go broke! Here’s where the hard part comes in for teen and parent alike. Make sure the amount you give them is less than it will take for them to do all they want to do. If they want much more than the basics, let them work for it. This link between work and income is a powerful lesson that needs to be learned before they get out into the working world.

Step three: Give them freedom to experience the consequences. Your child is going to make some dumb spending choices. Do not bail them out. They will wail that the “special shoes” are “on sale NOW!” But they’ve already spent their wad. “Can’t you just loan me the money?” No way. Don’t you do it!

Of course, I’m not talking about real emergencies, or allowing your child to be harmed in any way. But missing a big date, a big sale or a cool experience is neither an emergency or harmful – in fact, it may be the best thing that ever happens to them. But don’t expect them to see that. Experiencing the pain of their own bad choices is part of how children grow up to be adults. 

Step four: Repeat as often as necessary. These four, simple steps are to be introduced early, revised often and customized as necessary. You may apply them three different ways with three different children. 

Just keep at it. Your children are too important not to.

If you would like additional assistance, request my report, “Money Tips for Parents and Children.” It’s free for the asking. Email me at [email protected].

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