Transmitting Financial Wisdom to Children

    My children aren't "getting it" when it comes to money. How can I help them?

    I've struggled watching younger friends in college take out student loans and spend the money on a new entertainment system. Those are just the things I see. I know they're getting hit right and left with credit card offers, so I'm pretty sure there's more trouble lurking under the surface.

    But I'm getting ahead of myself: My wife and I do not have children, and now that you know this you're probably asking why I'm so interested in children's finances. Good question! I've worked in retirement planning for several years and have observed that some people "get it" while others do not. Some of the ones who get it barely have a high school education. Some of the ones who do not are Ph.D.s in their specialty.

    So what's the big deal, you might ask. So what if they don't "get it." They will certainly make enough money to not have to worry, right? No. In fact, not even close.

    There are three destructive tendencies innate in children, any of which is sufficient to damage their financial and/or spiritual future.

The first is greed. The second is incontinence (the financial kind). The third is a disassociation of money and consequence. You may have already guessed that most children do not have all three. Most have one or two out of three, and those are the adults I am working with who are having a terrible time trying to prepare for retirement.

    Greed and incontinence are mirror images of each other. The stereotype is the greedy young boy and the overly generous little girl, but the tendencies are not gender-specific. Both types of children need gentle but firm guidance to help them balance their predisposition.

    The most easily corrected tendency is the third, a disassociation of money and consequence. In a financially primitive society this association happens naturally: a child that goes to the store and loses his coins comes home with nothing. In a financially sophisticated society, this type of natural and immediately painful consequence is often removed or mitigated by credit (or by a parent with good intentions). Your goal should be to allow as many natural consequences as possible appropriate to the child's developmental stage.

    I was eighteen when I borrowed a resort's windsurf board and sail and came back within half an hour with its mast broken in two. At the time it cost half my life savings ($182) to replace. As painful as that experience was, I can only imagine how much pain parents feel as they watch their child go through it.

    Again, I am not a parent. Every resource I have consulted (written by psychologists, mothers, economists, and fathers) has echoed that children must experience their own financial consequences, without undue parental intervention, in order to learn to responsibly handle money. These experiences must be allowed to happen at an early age with small amounts (such as not immediately replacing a 6-year-old's broken toy), then larger amounts (such as having a 10-year-old pay for a broken window out of his or her allowance and doing chores), and finally major amounts (such as matching the amount a 16-year-old saves toward a car purchase, but not buying it for him or her). In fact, the earliest, smallest experiences will be the most valuable, but they must be reinforced even through adulthood.