Remember your favourite child stars? From their pudgy faces to their perfect dimples, these child prodigies had it made. Fame, fortune and a fantastic bank account—all before the age of 14. But then disaster struck. The baby fat melted, the partying kicked in, and suddenly these child stars were near bankrupt and barely getting by. Once the cameras stopped rolling, stars like Gary Coleman, Danny Bonaduce, and more recently, Lindsay Lohan, found themselves in a world of excess, apparently without any strong parental figure to help them stay on the straight and narrow.
When it comes to kids and money, it’s all too easy to lead them down a road of excess and expectations because simply put, we want our kids to have it all. But instead of fearing that your child may do without, you should instead be focusing on teaching important financial principles early in life. Child star or not, the sooner you teach your daughter or son money smarts, the more you can rest assured that your child will indeed not ‘want’ as she gets older—because smart girl, she can fend for herself!
Consider these five lessons to get you started:
Teach your children about value
Allowances are a great way to teach children about money and its value, provided the payment is offered as a reward rather than a bribe. The trick here is being able to distinguish the difference. A reward is provided when the child goes above and beyond that which is expected. A bribe is offered when the child refuses to complete assigned tasks—and needs a little incentive.
By rewarding your child only for exceptional service, they’ll quickly learn the value of hard work (and understand that sometimes in life you have to do things that you don’t like). Furthermore, you’re helping your child understand that each member of the family has a responsibility to contribute to the overall functioning and well-being of the family, thereby instilling a sense of responsibility and respect that money simply can’t buy.
Of course, that’s not to say that giving your kids an allowance is an entirely bad idea. If the purpose of the allowance is to teach your children how to manage money and expectations, then you’re on the right track. Just remember to be consistent and firm with what does and doesn’t warrant payment.
The three S’s
If your child receives an allowance or financial gift, make sure it is understood exactly how this money can—and should—be used. The easiest way to do this is to employ the three S’s:
Sit down with your child and help him or her understand why each of the S’s is important and how each one affects the other. Teaching your child how to strike a balance between these three areas is the first step to early financial planning and budgeting basics.
Don’t just say no
It comes as no surprise that children hate it when they’re told “no”. While many parents chalk this up to spoiled-child syndrome, that isn’t necessarily the case. More often than not, it’s because the child doesn’t understand the reason behind the refusal (and no, “because I said so” is not a valid justification). Granted, as a parent you have the final say, but when you’re a kid, this really doesn’t seem fair. So instead of simply laying down the law, take the time to explain to your child the reason behind your answer. The next time your child asks for a new toy at the store, tell them “no, because…” and have them repeat it back to you to make sure they fully understand. This exercise will not only help them comprehend their current predicament, but it will teach them to stop and think before acting on an impulse. (After all, impulse buying is a major contributing factor to consumer debt in adults.)
Plan for the future
Teach your child how to effectively manage money through a series of goal-setting exercises. Part of these exercises should be helping your child to identify his or her needs and then creating a plan that will help achieve the final goal.
For example, a need could be another pair of trendy sneakers. Step one could involve taking your child to the store to look at the various kinds of sneakers and to compare prices. If your child immediately gravitates towards the most expensive pair, stop and explain to them how this will affect their finances and how it might impact some of their other financial goals.
Encourage shopping around for better prices. Whether your child decides to purchase the expensive sneakers or not is irrelevant. What is important is that he or she has learned how current financial decisions can impact future goals. As long as the child is aware and accountable for the end decision, the lesson has not been wasted.
Make it fun!
Financial planning doesn’t have to be boring. Make it fun with games like Monopoly, Acquire or Money. These board games make learning about money fun and rewarding. If your child is too young to play these games, sit them down with a jar full of coins and help them to make change. This will help your child to identify the different types of coins, while at the same time improving math skills.
It’s about making mistakes
It doesn’t matter if your child is a budding movie star or an average fifth grader. Ultimately, he or she is going to make financial mistakes—and it’s your job as a parent to make sure that these errors are executed under your supervision so that the proper lessons can be learned.
Along those lines, as much as you may want to jump in, don’t give in to the urge to save your child when those mistakes are inevitably made; it’s very often the natural consequences of making mistakes that teaches the best lessons of all.
It starts with you
Perhaps most importantly, it’s your job to become a financial role model for your child. Just look at Hollywood stars like Neil Patrick Harris and Jodie Foster—it’s safe to say that these former child actors benefited from strong financial role models. And while your child may not have the income potential of a triple threat like Doogie Howser, she needs financial guidance nonetheless—give it to her now.
Whether you’re in the planning stages, growing into your chic maternity wear or have a little one in the nursery already, you know that being a parent changes everything. So while you may wonder if you’ll ever fit into your skinny jeans again (you will), you wonder more about your baby’s future, how to give your child the best of everything and how to protect your entire family. By putting the right plans in place from the get-go, you can stop worrying about the what-ifs.
Part of raising kids is letting them make mistakes. As they get older, their mistakes will grow right along with them. (Case in point: Cutting a doll’s hair at age four is way less serious than getting a crush’s name tattooed on one’s back at 18. Agree?)
But life is full of surprises—some pleasant, some not so much. And it’s the ones that change your child’s life forever that you worry about the most. Since you and your spouse (or partner) are your child’s primary providers, you must think of the unthinkable: what if something happens to one or both of you, or even your child?
Sure, it’s hard to think about. But the best thing you can do is have a plan in place to protect your family. Here’s what you need to know.
You Need Life Insurance
First, get enough life insurance for you and your spouse/partner to provide long-term financial security for your family. This is important because life insurance can:
Ensure all of your debts would be covered should something happen to you or your spouse/partner. Like most young families, you probably have few investments and large debts (a mortgage, car loan and outstanding credit card debt, for example).
Replace a breadwinner’s lost income or pay for childcare should either parent die, ideally until the children reach 18 years of age or older.
Cover funeral expenses and buy the time needed for a grieving family to adjust to the loss of a parent.
You may also consider securing a basic term life insurance policy and/or critical illness policy for your child. Why would they need it? It starts them on a financial path early on and ensures that they can build on that plan and not get denied coverage down the road should they get ill — as you pray they won’t — at a young age. Your insurance provider/financial planner can guide you in the right direction.
You Need Up-to-Date Wills
You and your spouse/partner need to have valid, up-to-date wills. If you don’t, your estate will be divided according to provincial laws, which may not reflect your wishes. An up-to-date will allows you to:
Appoint a representative to administer your estate. Depending on where you live, your representative may be called an executor, estate trustee or liquidator. This person or company is responsible for settling with creditors and distributing your assets according to the terms of your will. It’s a good idea to name an alternative representative in case your first choice is unable or unwilling to accept the duties.
Appoint a guardian, or “tutor” in Quebec, to care for your dependent children.
Set up a testamentary trust within your will. A trust allows you to leave instructions as to how certain estate assets are to be managed over time, rather than giving them to a beneficiary outright. For instance, you might set up a testamentary trust to provide regular income or to pay for post-secondary education for your children and manage their assets on their behalf until they reach a specified age.
You Need Powers of Attorney
A will is vital, but it doesn’t come into effect until you pass away. You also need to consider the possibility of becoming seriously ill or disabled and unable to make financial decisions. In that case, you want to protect your property and your personal care. Here’s why:
To protect your property. To protect against this contingency, you need a continuing power of attorney for property. (In Quebec, it’s called a mandate in anticipation of incapacity.)
To protect your personal care. Similarly, a power of attorney for personal care enables you to name someone to make decisions about your medical care.
Get the Right Advice
Life insurance, wills and powers of attorney are the building blocks of your estate plan. With professional advice, you can use them to protect your family now and in the future.
Yes, it can be complicated. Yes, it can be a difficult conversation to have. But the peace of mind that comes with having a plan of protection in place is priceless.
All this to think about and your child hasn’t even started driving, dating—or perhaps even moved beyond diapers—yet! Just remember that having an estate plan in place helps ensure you can give your children the best of everything. And isn’t that what every parent wants?