Here are some suggestions for minimizing marital money strife and raising financially savvy children.
- Involve your spouse or partner in all important financial decisions. In close relationships, one spouse or partner usually oversees the investments and other family financial matters. But planning for retirement and other big decisions require closer collaboration. Even if you've had some difficulty seeing eye-to-eye on financial issues before, weighty retirement decisions must be made jointly. Each partner must agree on when to retire, where to live, how much money can be spent, and how the retirement savings should be invested. These discussions should commence many years before you intend to retire. It wouldn't hurt to set aside a "financial planning day" on the same date each year to discuss where you stand financially and your strategies for the future.
- Talk about money matters with the younger generation. Money shouldn't be a taboo subject in the family. Here's an easy way to help your children – even the adult children – learn about money. Simply discuss family finances and investments in their presence. You might even want to give them some stock to further stimulate an interest in investing. Several years ago, I surveyed over 1,000 mutual fund managers. One of the questions I asked was how they learned about investing. Most of the managers attributed their early knowledge to hearing their parents and grandparents discuss the family's investments. Incidentally, the vast majority of the money managers surveyed came from middle-income families. So involve the youngsters in your life in family money discussions.
- Don't overindulge your youngsters. Sadly, many children reach adulthood with such appalling financial habits that their only hope is to receive a fat inheritance. It used to be that parents had no problem teaching their children about financial limits, because most didn't have a whole lot of money to spend on them in the first place. But we've become a more affluent society, so many of us have more money and "things" than our parents did. Even if we don't have more than our parents, there's an insidious financial malaise permeating our society that causes many parents to indulge their children financially beyond their ability to comfortably do so. It's getting out of control. If you don't believe me, take a look at the expensive cars parked in the local high school's student parking lot. Whether you can afford to or not, bestowing many and expensive material goods on a child will stack the odds in favor of that child becoming a financially irresponsible adult. You set limits on other aspects of a child's life. Set financial limits as well. Sometimes, the best financial advice you can give to a rapacious child is: "We can't afford it." Here's the incentive: Imagine how much better your retirement will be if you don't have to provide financial support to your children.
- Give an IRA to a child. Giving an IRA to a child or other younger generation family member is an excellent way to show the importance of saving for retirement even though it's way off in the future. The rules for establishing IRAs, even for minors, are pretty easy. Most mutual funds and stock brokerage companies will permit custodial IRAs for minors. Also, if you survive the shock of a child's attaining gainful employ after graduation and if you can spare the money, you might want to help the new worker contribute to a 401(k) or other savings plan at work. With all the financial demands accompanying a first job, contributing to a 401(k) might be impossible at first. You can help. Just like helping out with an IRA, this is a valuable lesson in the virtue of preparing for retirement sooner rather than later.
- Set a good example for the youngsters in your life. It's not easy raising children. Never has been, but it seems to be harder now than it was for earlier generations. One of my former professors once observed: "Just keeping our kids from suffering grievous injury is a sign of parental success." While there are far more important child-rearing responsibilities, the one I'd like to proffer is to strive to set a good financial example for the children in your life. This includes being prudent in the way you spend, save, and invest money.
- Kids are different in the way they handle money. Despite your best efforts at teaching your children about financial responsibility, children's money habits are rarely identical. My three kids could be a case study. One is quite responsible, another loves to hoard money, while the third is a world-class spender. Come to think of it, the only thing they have in common is that they share the same parents. The point here is that as you endeavor to help your kids become financially responsible adults, take these differences into account.
If, as he or she reaches young adulthood, you have a child who has problems handling money, it may be advisable to put some strictures on how or when they receive an inheritance. Sometimes, the most unfair way to treat your children from the standpoint of distributing your estate is to treat them all identically. An attorney who is experienced in such matters is your best source of guidance. If you have a disabled child or other family member, you may need to employ special estate planning strategies designed to protect and care for a disabled person after your demise.