How much should you help your children?
Warren Buffett’s daughter Susie once asked her father for a loan to renovate her kitchen. He told her to go to the bank like everyone else. Mr. Buffett cares about his daughter — he just believes it’s best for his children not to be handed everything on a silver platter.
When it comes to helping children financially, there’s no definitive approach. What’s right for your family will depend on your principles and beliefs and your child’s personality. However, here are some suggestions on how you can support your children and help them learn valuable life skills about money as they grow up.
Lessons from an allowance
Giving an allowance can be as simple as providing spending money for your kids. But it can also be a learning opportunity, instilling good financial habits in your children. For example:
- Provide an amount large enough that your child can set some aside as savings.
- Base the allowance on the costs of estimated needs and wants, so your child can learn how to budget until the next payday.
- Attach an allowance to special tasks beyond normal chores, to create a sense of earning.
Even if you’re in a position to pay for the bulk of your child’s post-secondary education costs, you may want to encourage him or her to contribute earnings from a summer job. It’s personal experience in achieving a real-world goal that can build positive financial habits for adulthood.
Once your child is in university or college, it can be a good idea for you to control the flow of the money tap. Your child will learn how to manage finances a lot better if she or he practices how to stick to a budget.
Beware of affluenza
As you grow older, you may be tempted to make life easier and more enriching for your children and grandchildren by providing them with financial support. Give too much support, however, and you run the risk of “affluenza” — the loss of initiative and independence caused by receiving too much wealth too easily. In other words, if you help out too much, your children may begin to feel entitled to everything.
There are no rules here, but there are ways to keep affluenza at bay by giving money in a controlled manner, including:
- Pay only for essentials, such as car repairs or home repairs, or “extras” for your grandchildren, such as summer camp or music lessons.
- Give small gifts over time rather than a large lump-sum.
- Instead of a giving a lump-sum inheritance through your will, plan a series of payments through a trust.
Whatever approach you decide is right for you and your family, you can count on us to help you carry it out through your plan.