Children & Money – Simple Rules
Researchers Dr. Thomas Stanley and Dr. William Danko, in their book entitled The Millionaire Next Door, reveal that most millionaires are developed, not born. The book shows us that a millionaire is generally someone who has a modest income, someone with an unpretentious lifestyle and someone who has learned to save early in life. Through their research, Stanley and Danko discuss some basic rules for children of affluent families. And while you may not consider yourself overly wealthy, their ideas are worth considering when teaching your own children how to handle their money.
First rule: Never tell them how wealthy you are
Children of middle-income families generally earn more as adults than children from wealthier families. That’s because middle-income children have more drive and determination. These children must learn responsible work ethics in order to achieve their goals. On the flip side, children who are constantly informed of their parents’ wealth, tend to grow up living beyond their means, developing highly consumptive lifestyles without an ability to save.
Second rule: Teach them discipline
No matter how wealthy you are, teach your children frugality and discipline when it comes to money matters. Better yet, demonstrate these rules in your own approach to spending and saving. After all, children are very perceptive.
Third rule: Make them prove their abilities
Don’t let your children experience your generosity until after they’ve demonstrated a mature, disciplined adult lifestyle. Setting up a trust for your children has both estate planning and tax advantages. But it also gives you another advantage. A trust will allow you to hold back your distribution of money to your children until they possess healthy financial patterns. For some children, that may not happen until they are 40 or 50 years old.
Fourth rule: Don’t make promises
Minimize the discussion of items that each child or grandchild will inherit. Promises to one child that he or she will receive the house in the suburbs and then promising the cottage in the Muskokas to another could cause big problems. There’s a proper time and place for those discussions, and you can minimize disappointments by keeping that conversation private.
Fifth rule: Don’t negotiate with cash
Never give cash or other significant gifts to an adult child as part of a negotiation strategy. Give out of love, not performance. Adult children often lose respect for their parents who exert these high-pressure tactics.
Sixth rule: Stay out of it
Stay out of your adult children’s family matters. Don’t impose your ideals on your children. Let them live their own lives and try not to interfere. Before giving gifts to your grandchildren, make sure you discuss it with their parents.
Seventh rule: Don’t compete
When you boast about how much money you have, you’re sending a confusing message to your children – even to your adult children – who may not have the means or the opportunity to compete with you. Your children are perceptive enough to appreciate what you’ve accomplished.
Eighth rule: Treat them as individuals
Always remember that your children are unique. They will have different ideas of what success means to them. They’ll want different things. Be motivated in different ways. Giving them gifts won’t necessarily enhance their talents. And subsidizing underachievers tends only to weaken them further.
Ninth rule: Emphasize their achievements
Emphasize the successes your children achieve, no matter how big or small. Teach children to develop healthy goals and to achieve them. Don’t allow them to dream unrealistically while developing consumptive habits.
Tenth rule: Tell them there’s more to life than your money
Point out to your children that there are a lot of things in life more valuable than money, such as good health, happiness, and a loving family. Money shouldn’t become the central focus of your child’s life.
What’s critical to remember is that the best relationship you can have with your children is one of love and support. Money should not be the basis of your relationship. It should not be the topic of every discussion.
Strive to develop good relationships, without a financial umbilical cord.
