Helping Your Kids Become Financially Savvy Throughout Their Lives

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Mother Teaching Kid How To Manage Money

Your family plays a big role in your financial security.

We worry that our parents might outlive their retirement savings and need additional help from us. We’re comforted by the thought that family members will likely be willing to help us out if we get into money trouble. We strive to help our children financially, both now and through an inheritance later.

Our familial bonds can be both an asset and a liability, but by raising financially savvy children and helping them make sound financial decisions as young adults, you can help keep them from becoming a drain on your savings.

Raising Financially Strong Children

If your children grow up to have financial trouble, you’ll likely want to go to their rescue, using your own savings to help them with any unpaid debt or offer them a loan. However, this savior mindset can turn your children into major financial liability well after their 18th birthday.

To help your adult children avoid swimming in credit card debt, missing mortgage payments, and constantly asking you for money in the first place, begin early 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 – all they have to do is ask their parents to get them something, and they’ll either get it or not. Oftentimes, the children won’t consider the price or value at all when asking for the purchase.

Make your children feel like they’re spending their own money to teach them responsibility. Give them an allowance – even when they’re young and just need money for some candy – and insist they live within this budget.

Show them how to divide the budget up to cover their own “fun” expenses, such as a new video game, and other expenses, like birthday presents for family. This way, instead of you constantly saying “no” to your children, they will learn to say “no” to themselves.

Helping Young Adults Achieve Financial Independence

Once your children enter the workforce, you want them to begin steadily building wealth.

A financially strong adult will be 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 stop relying on you to bail them out of financial problems.

Encourage them through your own example, showing how you save money and the benefits of accumulating wealth through buying instead of renting.

A few financial incentives may also help. Tell your adult children if they scrounge together a house payment, you will throw in an additional sum of money, or offer to subsidize their 401k contribution at 25 cents on the dollar for their first year of investing.

This doesn’t mean you intend to fund their retirement instead of your own, but giving them these added incentives might help them get started as investors earlier rather than later, helping them avoid costly financial problems down the line.

Set Up a Consultation with a Financial Planner

You can also set your adult children up with a financial planner. Sometimes children are more likely to take the advice of someone other than their parents, and a financial planner can help them make sure they’re making the best financial decisions possible for their specific circumstances.

Contact our financial experts at BP Financial today, or encourage your adult children to set up a free consultation to begin their path to financial independence.

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