Young & Broke Part II - Lessons for Your Children’s College Education
In response to the article “Young & Broke”, LaserTroly pointed out that my approach was good in theory but was not really practical in raising teenagers. For me having a plan of action on how I want to raise my children is important. Teens do have choices and can (and usually do) make different choices than what we plan on. Yet, teaching from a plan (whether it will work only in theory or not) is still better than no plan at all because when our children see that their way did not work (e.g., when they are struggling with huge debt or struggling to pay for college) then they will start to realize that we actually may have known what we were talking about. And, having been taught good financial habits initially (even if they moan and groan about it) will give them a basis to turn to rather than having no direction at all.
I remember when I was younger, my parents talked about money around the dinner table, in particular about savings, investing and paying for college. I even remember asking my mom for something our neighbor had and she said that we did not need to keep up with the Joneses. Another time, when my siblings and I were looking into a birthday present for our dad’s birthday, I remember thinking a country club membership would be a good gift. I thought this because my friend’s dad was a member of a club and took my friend golfing all the time. So, my mom had me check into the price of a membership and boy was I shocked when I found out how much it costs. It taught me the value of money.
My parents gave us latitude yet at the same time setting limits. We were required to save and give to charity a certain amount from our allowance. By the time we got a job, we knew that we had to pay for our college education and how much it cost due to all of our dinner conversations. Thus, even though the decision was ours where to use the money, my parents had already informed us of the possible consequences of saving and of not saving for college. In the end, we each decided to save for college and to borrow our parent’s 10+ year old cars instead of getting a new car of our own.
Giving children choices is important. Yet, giving choices does not mean that it is all left up to them. If they want a car, the first step is to decide what you are willing to do for them based on what will teach them a sound financial education not based on what the neighbor does. If you want to pitch in $5,000, then give them choices, such as:
• I have $5,000 that I was going to spend on our vacation and 16th birthday party, would you rather have a car or have a party and go on vacation to ______?
• Do you want a new car that costs $20,000 or a trade-in that costs around $7,000?
• Do you want to work for the extra money before you buy a car or do you want us to loan you the money at 10% interest?
If they ask if they can use their college money, you have the right to say no because that was not what the fund was intended for. They may be mad. Yet, when they are adults, they may have learned not to use their 401(k) fund for a new car either.
I know that it is not easy raising children (even though my son is 1 year old, I have heard many stories from my friends). Having financially responsible teens is possible. My parents raised my brothers and sister and I all right. And, even if you get off to a bad start there is time to recover. A son of a friend of mine got off to a bad start academically in high school. He rebounded his junior and senior year after several conversations from different people (including myself). He is now going to a state school for his first two years while planning to transfer to the school he wants to go to. In addition, he is getting training to be an EMT for extra money and to use the experience to see if he really wants to be a doctor.
So how can we handle different situations that LaserTroly raised? There are millions of alternatives. And, there can be used in innovated ways to teach children about money. If you have ideas, please include them in the comment section. As for my first thoughts,
Money from relatives:
You can confront the relatives with how you want to raise your children. Think about how you would respond if relatives were allowing your children to watch R-rated movies or giving them alcohol? You can offer your relatives choices such as no gift at all or a $25 gift for fun money with the rest to a college/new car fund?
If that does not work (which many parents have probably already have tried), work the money into your child’s budget. Give them less of an allowance and put more money that you would have given into their college fund. Tell your child that the money from relatives is a part of his overall allowance (they are just helping out) and their gifts is paid like a bonus where they shouldn’t spend it until they have it (could use it for something special like a car or their share of sweet 16 party).
Keeping up with the Joneses:
Sorry, I do not have kids at this age to really answer everybody’s questions from experience. However, in looking for a new home that we will raise our kids in, we did pick out a good school district for our children. Even though some in the community have considerable wealth, the neighborhood that we picked has good hard working middle class families where hopefully the pressure to keep up with their friends is less. And, the house we picked was smaller than I initially wanted. Part of it was we wanted to live comfortably (not stretch our budget) with a side benefit of living modestly to set a good example for our children.
To be blunt, trying to keep up with the Joneses to keep our children happy is setting them up for a bigger failure later in life. I do not mind if my kids need to work hard to have the things that other children have. Look at Warren Buffet. He lived in a very modest house and one of his children works as a nanny or teacher (can’t remember which) because he does believe in passing on his money to his children.
Vacations and Eating-out (how can we not take them along when we want to be together)
I remember time spent with my parents around the dinner table at home. We did not really start going out for dinner with them on a regular basis until we were adults. And, we did go on a few vacations down to Williamsburg and Hilton Head (before it got too pricey). And, at the same time, my parents went on a few vacations on their own (to St. Thomas and other exotic places). They also went out to eat and left us home with our older sister. My parents going out to enjoy their money without us did not rob us from together time because our time together was done elsewhere. Together time is about being together not around where we spend out money.
As parents know, raising children first comes from what values you want to set for your children. Taking them on vacation is not bad. Splurging on a vacation is, because it is telling them “do as I say and not as I do.” You may tell them to save their money for college and live modestly until they reach their top earning potential. Yet, if they see the good life, all I am saying is that it will be hard for them to give it up when they are on their own.
Working for extra money (they just spend it on what they want)
Parents have always put some sort of limits on their children working after school (e.g., only if they maintain a B average). Why not also put on a financial requirement such as saving 20% of pre-tax money for college. If you want, you can do an added bonus where you match their contribution by 50%. Just think how far ahead your children will be ahead when they get a full time job and are just use to contributing to a savings plan.
There is no right way to raise children. And, the ideal way will not always be practical. Yet, I hope that I raised some awareness in how hard of a transition children have in leaving the nest; not only with getting their first job and living on their own for the first time but transitioning their financial lifestyle as well from living somewhat lavishly to living frugally.
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July 5th, 2006 at 9:37 am
Again, I totally agree in principle. But over the years, I’ve found that a strong-willed child is able to foil even the best-intentioned and cleverest of parents at least some of the time. We do win some rounds, but so does she. I’m not sure yet what the net effect will be.
For example, I’ve long had the practice of chatting with my daughter about different financial situations. When colleagues declared bankruptcy, I explained to my eight year old daughter what that was and how it happenned. Over the years we’ve discussed credit, housing prices, saving for retirement, mutual fund market timing, etc. etc. You’d think she’d be able to write her own Money Magazine column by now. And yet, when I bring up a topic that has arisen on the Debt Diet board these days with my seventeen year old daughter, she sings “I’m not listening…..”
I could go on. But the theme that keeps repeating is that of a young person who, frankly, likes to spend but doesn’t like to save. Just like many adults I know who, even though they understand intellectually that saving money would benefit them, seem to have a hard time with impulse control. Interestingly, that same disconnect has occurred in my daughter’s school work - even though she’s quite bright, she doesn’t put as much effort into her schoolwork as she should, no matter what causes and effects are set up to motivate her.
When I was younger, I believed wholeheartedly in the nuture theory of parenting - ie. right imputs will lead to right behavior. I’m now swinging over to the nature side of things, wondering if some of the similar behaviors I see in other relatives have a genetic link.
July 5th, 2006 at 9:59 am
In looking at my friend’s son, we had several conversations with him and it seemed like it wasn’t working. Now that he is in college, he has done a 180 degree change from when he was a freshman in high school. He even came up with the idea of being an EMT on his own. Shows that even though he may not have listened to our conversations 4 years ago, he heard it and stored it for future use (once he was past his teen years where he was trying to become independent from rebelling).
July 10th, 2006 at 10:08 am
My dad always led by example - talking about savings, investing, making sure I knew exactly what he was investing for me. When I was a freshman in college, he made me write out the check for my first tuition payment - definitely made me realize how much my education is worth! It also helps that I intern at a bank during the summer - one that really emphasizes saving, so it’s drilled into my head a lot! I guess the only thing is credit cards - it’s hard to get a handle on that when you’re still in college and don’t really have a job yet. But with my parents help and reading these pf blogs, I’m trying to educate myself and get a handle on my credit card spending.
August 14th, 2006 at 2:28 pm
If I only knew now what I knew then……. Know one ever told me that starting at age 25 if I saved $65 a month by age 65 I’d have a million dollars. And know one ever really taught me the importance or the principle of savings. Really, if I had to choose what my parents taught me about money—how to save it, how to make it or how to spend it—I’d probably have to say, what they taught me the most is how to spend money.
For many preteens and teens today, although bright, educated and smart, they fail when it comes to basic, simple money management skills. 4 out of 5 teenagers can not tell you what goes on inside a bank. And 73% didn’t know that a stock would yield more over time than a savings account, according to Jump $tart. Why? Because finance and money management are not being taught in schools or is just now starting to be taught in certain areas of the country in high schools. Plus, high schools are experiencing the largest dropout rate in their history—1 dropout every 7 seconds or 1 million drop outs in 2005. Plus, a minimum wage increase has just been turned down and wage stagnation is at its worst in 30 years.
If you don’t take the time to teach your children the principles of money NO ONE ELSE WILL! MoneyMoney101 for preteens and teens is coming! Stay tuned.