Make no mistake: Your children will make some appalling financial blunders. But it is a lot better if they make those mistakes while they are young and the sums involved are modest.To that end, it is important to give youngsters financial responsibility, starting with a toy-and-candy allowance when they are five or six years old and then, once they are teenagers, stepping it up with a clothing allowance and a bank account.
Savings are good to have and we started accounts for the kids as soon as they were born. That's popular to do in Sweden, probably because we're boring and know the kids will appreciate the money later on in life. Every family in Sweden receive a monthly check of $160 per child until age 16. That covers all day care costs for a full time child but we deposit the money into an index fund instead. Those small accounts will be worth a little over $80 000 (at 4% interest) by then. My kids will be given the money at the latest by age 16, hopefully earlier, and can choose what to do with them. Good things that come to mind are traveling or buy a car. I will discreetly supervise spending but don't expect to interfere. Otherwise I have failed.
In case we live in Sweden we don't have to pay for any education for our children but it's uncertain if we'll stay. Both me and my wife had full athletic scholarships at university in US and we would love our kids to go through that experience. We're setting aside $500 monthly per child as a little nest egg when they turn 20. At 4% that will be roughly $185 000 per child, most likely not spent on education. The money will be given to the children as they turn 20 and used for a good purpose.
Ten years before I had children I swore they would not be spoiled little shits. I feel very strong about this. Giving money to my kids doesn't mean spoiling them. They should know the value of saving and working early on. My first "real job" was at age 13 when I spent half the summer break working at an industrial laundry place. Unbelievably boring but it paid a whopping $5/hour. That was good money for a 13-year old 25 years ago. I'm hoping that my children will choose to do something similar during summer breaks in their teenage years. Hopefully something more fun and rewarding that teaches good life lessons.
Graduation gifts, marriage costs, and house deposits are mentioned in the article and that is of course something I also have in mind. But I see this less as a finacial responsibility and more a privilege of seeing the kids grow up. If I'm around during this time I will gladly share my wealth with the children. What's the point of holding on to money until I die?
I grew up in a very low risk family although I have managed to become more adventurous. Mistakes can be costly but learning early is important. Jonathan Clement says,
The most important financial skill a child can learn is the ability to delay gratification. What's the second most important? Kids need to become comfortable taking risks.
Today's children face a world of 401(k) plans, individual retirement accounts and possibly private Social Security accounts. If they aren't comfortable investing their savings in something riskier than a money-market account, they will have a tough time amassing enough for retirement.
I feel the same way and plan on involving my children in many regular financial tasks and teach them about taking calculated risks. There is a fine line between knowing you can make mistakes and still have the family as a backup and spending recklessly because you know the family will most likely bail you out of trouble. It's up to me to make sure my kids choose the first alternative.
Do you have a financial plan for the kids? What other good ideas have I forgotten?
Popularity: 7% [?]