Since my interests are spread over so many different areas, the topics ran the gamut from travel, to parenting, and of course: finance. But of the five or so articles I read, one in particular resonated with me more than the others.
The topic was about raising financially responsible kids and within the piece was a quote that said “I’m not raising children, I’m raising adults.” That comment really stuck with me as I thought about the things my kids need to learn as they grow to be productive citizens.
Raising financially responsible children in this day and age is a challenge. From an early age they are faced with marketing ploys that condition them to want more and more -- an insatiable desire for an unobtainable goal. But really, how can we blame them for their lack of financial responsibility when, as adults, many of us have yet to graduate beyond our childhood spending into mature, financially responsible grown-ups?
You can’t expect to raise financially smart children if you aren’t practicing prudent financial management, first. Sure, “talking the talk” may work in the short-term, but the best lessons are taught by “walking the walk”.
Here are a few tips to guide you on the path to more walking than talking:
Make Sure Your Physiological Needs are In Check
If you’re a frequent visitor to the site then you’re familiar with the image above of the Financial Planning Tower. If you’re new to the site, it may look familiar -- maybe it reminds you of the food pyramid, or if you’re fancy, Maslow’s Hierarchy of Needs -- and for good reason.
The Financial Planning Tower is loosely based on both the food pyramid and Maslow’s Hierarchy of Needs in that all three require a set of ‘basic needs’ to be met before progressing to higher levels is a possibility.
To put this into context, the basic tenets of Maslow’s Hierarchy of Needs begins by addressing the physiological needs of: food, water, warmth, and rest.
This is a direct parallel to how children grow and serves as a model for the growth of our financial education.
When analyzing your financial health, can you say with 100% confidence that your income adequately covers your expenses, you have a handle on debt, and a solid emergency fund in place? If not, it may be time to revisit your foundation. On more occasions than I’d like to count, I’ve seen well-intentioned families meet needs at a higher level without being completely secure in their foundation, only to see their financial world crumble at the slightest unexpected emergency.
Don’t let that become your reality!
There’s a reason why people don’t build homes on sand. The foundation is not strong enough to support the weight of the structure. Your Financial Tower works the same way.
Balance Your Needs and Wants
If you are a parent, you’re all too familiar with how much your child needs. Infants cry when they are wet or hungry, due to the immediate need of a diaper change or bottle. The older kids need new clothes or money for field trips and special events.
When you’re in the trenches as a parent, it seems like the needs will never end. And as kids get older, their needs' seem to get more expensive. However, when we put kids on charge of their own money, they begin to learn some hard lessons.
That’s because, as we get older, we develop the ability to make decisions as to our needs and wants. We can eat a PB&J sandwich at home, or we can spend $8 for lunch at Burgers R Us.
Focusing on controlling our spending habits helps us grow into adults who can regulate our spending.
Simple, right? Well, not exactly...
There is a lot of confusion around “wants” and needs” and much of it is due to the luxuries we’ve become accustomed to.
For instance, think about what would happen if your TV just went out -- or it falls on the floor and breaks like mine did. How long would it take you to dip into the emergency fund, and go down to the nearest box store to buy a new one? Probably the same day if the store happened to still be open, right?
Because we’re not conditioned to go a day without a TV, therefore a TV becomes a need.
Many years ago, most homes only had one television (if at all) and people still lived happily ever after. But now, it’s nearly impossible to fathom a home without TVs in every room and a day without your favorite shows.
The reason for this: we’ve become normalized to the idea of this ‘want’ as a ‘need’. But the truth is, these things rarely tip the ‘Happiness Meter’ in your favor and, more often than not, work against you when it comes to building your financial tower.
Build a Solid Financial Base
Keeping up with your budget is the way to build a strong financial base while developing into a strong financial adult.
This reminds me of a quote I recently heard in passing: Live the life you can afford. This means keeping your expenses in check, increasing your income where you can, and building up your emergency fund so that you have a strong backstop in case you need it. This is what financially fit adults do.
In theory, it’s a really simple process, but the behavior necessary to stay committed requires a bit more effort.
1. Know Your Why
When it comes to establishing a solid financial foundation, you must first understand why you want to have control of your money. Start by getting to the root of what has caused you to stumble over financial roadblocks in the past and the difference maker this time around. Whatever ‘that’ is, you need to fully buy into it if you hope to stand a chance in completing your financial foundation.
2. Know Where You’re Spending
“Spend less than you make” is a simple concept, but unless you’re actually tracking how much you spend and where, you won’t be able to accurately determine how much of your income, ‘out-goes’. Understand how much of your paycheck you can spend every week, and aim to stay within that. The reality is, if you’re spending more than you make, financial goals like saving for retirement, paying off debt or buying a new house, will likely never be within reach.
3. Prioritize Your Saving
As you change your behavior to understand the rationale behind your financial decisions and begin tracking your spending, you also want to be aware of your long-term financial goals; like saving. We’re human, and that means it’s easy to get up in the excitement of short-term success. While understandable, it’s equally important to understand that the decisions made today, generally have the most impact on your future. If you build good financial habits early, like saving for retirement, you will reap the benefits many times over in the future.
Graduating into financial responsibility establishes a solid foundation to which we can build upon. Layered on top of this foundation is where we begin to boost our wealth and leave a legacy for future generations. Without it, everything we build will be on unstable footing and crumble at the first sign of danger.
Need help establishing your financial footing? We should talk! Click here to schedule a complimentary meeting where we can discuss the specifics of your situation and create a plan to get you back on track!
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.