As any parent can attest, raising children is expensive.

Supporting them financially as adults can get even more costly, but it’s becoming increasingly commonplace in today’s society. Half of parents recently surveyed by Bankrate said that they have sacrificed or are sacrificing their own retirement savings in order to help their adult children financially.1

That’s a frightening statistic, given that most adults aren’t on track when it comes to their retirement savings to begin with. One way to make sure you’re not footing your kids’ bills when they grow up is to start giving them the tools they’ll need now to establish their financial independence later.  

How? Well, it requires setting financial limits and letting them make—and learn from--their own mistakes. Both of which are easier said than done. “As a parent, you have to always ask yourself whether you’re empowering them or if you’re enabling them,” says Susan Beacham, CEO and co-founder of Money Savvy Generation, a financial literacy education company. 

The point is, it’s never too early to start teaching kids about money, as long as the lessons are age-appropriate. Here’s how to start, depending on how old your children are:

Preschool
Even very young children can understand the difference between wants and needs. Every time your child wants to buy the $5 toy at the pharmacy when you’ve just come to pick up a prescription, that’s your opportunity to explain why that’s a “want.” At the supermarket buying food? Time to talk about “needs.”

Kids this age are too young to understand the concept of credit, so, when possible, pay for purchases in front of them with cash. That way, they’ll see that you need to exchange money for the things that you buy, rather than thinking you magically acquire it by swiping a plastic card.

Elementary
By age five, children are old enough to start receiving an allowance and practicing spending and saving their money. You’ll still be taking care of their needs at this point, but they can begin figuring out how to pay for some of their wants. Let them bring their own spending money on shopping trips or for souvenir purchases on vacation. Help them think of purchases that they might want to save for over the longer-term (at this age a month is long term).

Remember that no matter how many times you talk to your kid about money, they’ll learn the most from the things that you do. When you make big money decisions, like purchasing a car or deciding where to go on vacation, talk through the process with your kids.

Middle School
By the tween years, kids can start to appreciate that we earn money by working. While they can’t legally hold jobs yet, they can earn money for extra chores around the house or for informal work like babysitting or shoveling. Kids who earn their own money are more likely to consider purchases they make with it more carefully.

“By eighth grade, kids can learn to make smart buying choices,” says Laura Levine, President and CEO of the Jump$tart Coalition for Personal Financial Literacy. “If you want a big-ticket item, you don’t just dash out and get the first thing you see. You comparison shop.”

Back-to-school shopping is a great opportunity for money lessons at this age. Work together to create a list (including both wants and needs for the year). Come up with a budget for the needs on the list, and shop together for those items with a close eye on costs. Let your child take any leftover money, along with his own spending money to purchase some of the wants.

High School
Teaching financial responsibility requires some serious money conversations and teenagers are ready to handle them. This is when you begin having realistic discussions about how much college will cost, how much (if at all) you’ll be able to help, how much they’ll need to borrow to cover the difference. As the college applications begin, you’ll also discuss how they’ll pay for those loans once they graduate.

A part-time job provides the opportunity to not only start earning money, but also begin learning about the bite that taxes can take out of a paycheck.  “We talk a lot about how to manage money, but kids also need to know how to earn it,” Levine says. “There needs to be a focus on careers and incomes, and conversations about how you need to make money so that you have money to save and invest.”

By high school, your child should have a bank account, and this is a good time for her to practice making purchases with a debit card. If the account is linked to your own, you can easily monitor purchases, and transfer money when needed. Encourage your child to download the associated app, to make it easier to track the account balance.

"One way to make sure you’re not footing your kids’ bills when they grow up is to start giving them the tools they’ll need now to establish their financial independence later."

College
Often the first time that children are away from home, college is an opportunity for students to practice living on a budget. Work with them to figure out how much they can spend each semester, then break it into months, weeks, and even days. Learning to live below their means may be one of the most valuable lessons they learn while they’re away at school.

College can also be a good time to start building credit, but most college students will need a co-signer in order to get their first credit card, which means you’re also on the hook for the balance. (An alternative is to add your child as an authorized user to a card that will report to the credit bureaus on his or her behalf.  Some cards will set separate credit limits for your children as well.) If you think your child’s ready, make sure you discuss before opening the account the importance of maintaining a good credit score, and that the goal should be to pay the card in full each month.

Post-graduation
This is when your children get to flex those budgeting muscles they’ve been building up since childhood. You can help by providing guidance, but establish boundaries upfront as to whether you’ll offer financial assistance—and how long that assistance will last. If your child knows upfront that you’re only going to cover her cell phone bill for six months, she’ll have more incentive to come up with a plan to cover that expense herself.

In the end, expectations are everything. “The more you treat your child like a child, the more your child behaves like a child,” Beacham says. “The more you treat your child like a young adult, the more your child behaves like a young adult.”

With Beth Braverman.

 

1 “Half of Parents Financially Helping Their Adult Children Say It’s Putting Retirement Savings at Risk,” Bankrate, April, 2019.

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The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.

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