By Julie Ford
I recently came across this article in U.S. News with guidance and ideas on saving versus spending on your children. Here are my favorite takeaways from the article with some of my own thoughts.
Teaching children savings habits
The article uses the example of saving for a future car as an opportunity to teach a child about the value of saving. The parents offer to match dollar for dollar what the kids (ages 11 and 13) are able to save toward the car purchase. Obviously, the kids contribute a very small amount towards the purchase, but that’s not the point. The important lesson is the child learning the discipline and value of saving and delayed gratification. This creates a deeper appreciation for money and the car as the end goal provides a tangible reminder of the benefits of saving.
College savings
Saving for future college expenses is a great goal and priority. However, as the article points out, this should not come at the expense of building up an emergency savings fund or saving for retirement. Let me explain why. Prioritizing retirement over your children’s college tuition might sound counterintuitive, but compare both seasons of life. Imagine you arrive at retirement but you don’t have enough saved. Or, imagine that 15 years into retirement you run out of money. Your options for increasing your income during retirement are much more limited and the burden of that shortfall may land on your children. By comparison, if by the time your first child begins college you don’t have enough saved, you have options – financial aid, loans, delaying retirement, a nonworking spouse returning to work. These are all options that are manageable and appropriate for this season of life. The bottom line is that it’s easier to bounce back and respond to shortfalls in your income or savings at a younger age. Also, if you end up taking out loans to fund a child’s education, you can turn this into a great learning experience for the child - teaching them at a young age how to properly manage debt.
Be a team
The most important point the article makes is how essential it is for parents to be thoughtful and in agreement as a couple on money decisions. I wholeheartedly agree. A child’s relationship with money develops at a young age and seeing parents model a thoughtful approach to finances and strive for unison will positively shape the child’s money habits, even when the parents make mistakes (which will inevitably happen!).
I’ll close by encouraging you to take it one year at a time, one child at a time. Your priorities and needs will constantly change as your kids grow. Keep an open line of communication between each other and with your kids.