LOUISE FAIRSAVE: Parents and money
On graduating from secondary school, many young adults take it for granted that once they have gained admission to university, their parents have the responsibility to fund their continued academic education. Some parents, in turn, pull out all the stops in order to ensure that their children go immediately on to university.
Yes, parents do have responsibilities for the development of their children, however within reason and within the scope of their financial capacity. For example, funding the related university cost may compromise the parents’ retirement saving plan, offset their planned pay down or pay off of a mortgage or laden them with worrying debt. Where such stressed parents place their obligation to the education of their child first, they will fund the education cost often with no discussion about the finances of the family.
So, their child proceeds to advance his/her academic education. The child is also likely to gain an emboldened sense of entitlement to the life he perceives that university graduates live and forget about his parents’ sacrifices later on. The parents may have created a financial dilemma for themselves.
The underlying problem likely developed over the preceding years: the child may have focused on schoolwork over the year; the parents paid for whatever their child wanted; and the young adult got no concept of how to handle money except to spend it.
This university transition period may be the last opportunity for parents to educate their children financially. This education should really have started from the time the child reached about ten years old. What are these lessons? Here are six:
1. Money does not grow on trees: Parents should talk about the family income – how much is available and how it limits spending and saving, giving more and more details as the child gets older.
2. Provide an allowance: Given a fixed amount to spend, the child learns quickly that once that amount is spent, there are no other spending choices. The amount of the allowance and the expectation of the range of expenses that the child manages should grow in scope as the child gets older. Ultimately the rules of the allowance should test the child’s decision-making with respect to saving for a future time as well.
3. Set examples: Parents set examples by their approach to debt and by their use of credit cards.
In addition, open discussions about the finances of the family are very healthy. Arguments among the parents about money issues provide poor examples for the child.
4. Earn income: Parents should encourage their children to earn additional income, particularly when there are complaints about the agreed allowance being meagre. Children may earn by doing extra chores around the house or by assisting neighbours and friends as agreed.
5. Saying No: Caring parents need to say no with an explanation to unreasonable financial demands by their children.
6. Charity: Each child needs to be introduced early to considering the needs of the less fortunate and the needy. Where parents believe in giving to the church, this belief should be discussed explicitly.
The aim is to educate and develop the child about making wise financial decisions. The child learns, as it matures into young adulthood, to make better and better decisions about money and spending and saving.
In addition, this financial training helps children to consider the parents’ contribution to their development as they proceed with their academic development. It is then more likely that any financial dilemma which the family faces will be appropriately abated in the long run.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.