How to make your child financially independent by 25

Being one of 10 children, I learned at a very early age the value of a dollar and the importance of managing money. I remember reviewing the weekly grocery flyers with my dad to map out where we would shop for the week to maximize the family food budget. Feeding a family of twelve on a single income required careful planning, and my dad was expert at stretching a dollar. He would then stress the importance of saving any money that was left at the end of the month. I knew my parents would not leave me a monetary fortune, but they provided me the financial know-how that has proven to be invaluable in my adult life.
Now that I have kids of my own, I want to pass on the financial life lessons that have been shared with me over the years. Even though the younger one is still in middle school and the other is a junior in high school, my goal is for them to achieve financial independence, if not freedom, by the time they are 25. (Okay, so I’ll let them keep the family health insurance plan for one year after that).
If you start the conversation about spending and saving at a young age, key principles will become deep rooted. Here are some of the fundamentals for helping your kids achieve financial freedom before their second quarter-century:
  • It’s ok to talk about money. Money will only be a taboo for your children if you let it. Early memories are imprinted for life, and money memories are no different. If you routinely buy things on credit, without showing your kids the resulting credit card statements—compound interest and all—there’s the danger they will repeat your mistakes when they grow up. Economics will play such a key role in their lives that you shouldn’t wait for them to leave the house before starting a dialogue. That’s why my husband and I have always been open about household expenditures–right down to involving our sons in planning family vacations and helping them understand the costs associated with them.
  • Watch your spending. Not only to keep yourself out of the red, but because your kids will be watching how you spend like hawks and they will follow what they see. They internalize the messages we send out both consciously and unconsciously. I make it a habit to discuss our buying decisions when we go shopping so my children get to see how much things cost and the rationale behind my purchases.
  • Make it visible. We live in a cashless age of credit cards and one-clickable, invisible transactions, so there is value in exposing kids to money in its most tangible form. Up until around age 8, each of my sons owned a piggy bank, filling it with quarters and dimes. When they got older they graduated to a savings account in another kind of bank, where they developed the habit of depositing some of their weekly allowance. Visiting an actual brick-and mortar bank building enabled them to visualize and feel a sense of ownership over the dollars sitting there. They can also view their statements so they can see their accounts grow and the interest that is being earned.
  • Work towards a goal. As soon as they were old enough to grasp the concept of saving, I encouraged my children to save for bigger goals, and come up with a concrete plan to keep themselves on track. How will they earn money to meet their goals? Basically, any job that doesn’t interfere with school or sleep gets my vote. It’s surprising how carefully they spend their own earnings compared to the cash they get from mom and dad. But sometimes it’s hard to devote a portion of a summer job paycheck to a lofty long-term goal when there are so many things that they want to buy right now! In order to encourage my eldest son to save, I decided to match the contributions he makes to his savings account. Believe it or not, it works! If he learns to save now it will be an easy transition to start saving for a home or retirement when he gets a fulltime job.
  • Show them the trade-offs. Teens are notoriously drawn to the latest fashion trends, and targeted advertising on social media offers a million reasons not to save their earnings: clothes, fast food, games, and gadgets. The last time I was dragged down the gaming aisle, I reminded my youngest son of the trade-off involved in that $20 soccer card. He could buy a card that would probably end up sitting on a shelf at home, or, that $20 could earn compound interest in a savings account and perhaps help buy a car when he turns sixteen. (Sometimes you have to be that annoying mom). The point was to make him aware of the flipside or opportunity cost to his purchases, and let him make up his own mind.
  • Learn what a budget is. Most people learn to live on a budget after leaving home. However, my eldest has started while still at high school, with such teenage necessities as cell phone bills, gas for his car and sneakers. That way kids can learn what things are going to cost them out in the real world, where the stakes are higher and where the consequences of poor budgeting can have greater consequences. He has his own debit card now, and he uses that to pay for things. The best thing about that is he can easily track his purchases online. Back in the day we used paper checkbook ledgers, remember those?
  • Teach them the value as well as the cost. You spend money on things that you value, so in a way your spending habits reflect your values. Giving back to others is important to us as a family, and I’ve encouraged my sons to donate their money to causes they think are important. One has chosen to donate to a pug charity where we rescued our dog. When funds are limited, they can still give back by donating their time. Not everything of value has a dollar amount associated with it!
  • Explain the difference between good and bad debt. When they are toddlers, you try to teach the difference between right and wrong. When they are a bit older, you can provide variations on the same theme, like, there’s a wrong way to borrow and a right way. Debt isn’t all “bad,” especially if used for education and marketable skills. Credit card debt, on the other hand, is “bad” due to the typically high interest rate, and it’s a general way of paying for things you could wait for or simply can’t afford.
  • Set expectations for when you expect your children to move on, either to: attend college, go to trade school, enlist or to bring in a paycheck that enables them to pay rent. Too often there’s an unspoken assumption there, and the next thing you know, your child is 40 and still living at home! As with all of the above, setting clear expectations to move out is something that needs to be done verbally and, if they don’t have a plan in place, you can help them work on one.
Above all, we want to take care of our kids, but when the time is right they need to go out into the world and fend for themselves—and that requires a toolkit that includes the ability to navigate their financial affairs. Talking about money and how to make sound economic decisions early and often provides a solid financial foundation that prepares them for financial independence.
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June 18, 2018