AdventureDad

There are a few basic "skills" I can teach my kids which will be with them throughout their lives.  Being good people and fitting in socially are a couple of them.  Teaching them how to handle money in a sensible way  is another one which will be important from pre-teenage years until they die.  But what is the best strategy?  I believe in starting early, creating good habits, rewarding good decisions, and giving responsibility early on.

Financial common sense is more rare than you might think.  Just look at all people who carry credit card debt and only pay the minimum amount each month. At interest rates averaging 15-20%.  It's easy to get stuck and tough to escape this debt trap.  Jonathan Clement at WSJ just wrote a short but excellent article about educating his own children about spending and saving.  His ideas are very close to my own values and sounds like a great way to go forward. It's a great summary of how you can minimize the risks of financial disasters in your children's lives by some simple steps.

Perhaps it's most important to have a plan, a lose idea of how to teach children about the  value of money.  If that's not done, chances are that us parents will be forced to constantly come to the rescue later in life.  That can get expensive and will decrease our ability of laying on the beach sipping sweet umbrella drinks.

My son is just beginning to grasp the concept of money at age 3.  He realizes we can't buy the whole toy store every time we visit.  In another year or so  I plan to give him a small allowance so he can buy the occasional toy or some extra lördagsgodis.  Expensive items will be covered by me and the wife.

I plan on giving a low limit credit card  early on. It's a good lesson in handling responsibility.  I have several cards  as well and consider them a good idea since they offer great benefits and my balances are always paid in full each month.

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?