The Best Financial Gifts For Children Is Not Money

20 Oct 2013 14:54

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I’m sure there will be some backlash on this one but the best financial gifts you can give your children does not involve handing over a pile of cash. As a parent I have three simple goals for my children:

  1. teach them how to survive in today’s world
  2. help ensure their survival
  3. love’em till the end of time

These are pretty simplistic but work for me. Two of the goals involve survival and part of surviving in modern times involves financial security. Here are the financial gifts I have or will be giving my children.


Budgeting (Age 8+)
Do not be shy about sharing your paycheck and monthly bills (commitments) with your children. It exposes them how to balance the needs and wants of the household. Kids are smarter than we give them credit for and grasp the concept quickly. It helps them understand that money is not an unlimited resource and planning is required to survive.

Savings (Age 10+)
Explain to your children what you are saving for and why. It is important they understand the concept of planning for major purchases, emergencies, and retirement. Planning for emergencies is always a great topic, what a child or even young adult perceive as an emergency is entirely different than you would expect. With my children I express it in little emergencies & big emergencies. Where little emergencies are like your car breaking down and big emergencies are when you cannot collect a paycheck and pay the bills.

Investing (Age 12+)
To most kids savings is very simple; you put it in a bank (piggy or commercial). From their perspective things like the stock market are only in the movies or for the incredibly rich. Share what investing techniques you are using to reach your saving goals. Why a bank, why the stock market, what are bonds, and so-on.

Saving Priorities (Age 18+)
A young working adult comes into something they never had before; a steady income. With a steady income for savings they need to understand which saving goals have more priority than others.

  1. Emergency savings
  2. Saving for a major purchase (house, wedding, etc…)
  3. Retirement

I realize the retirement zealots will scream bloody murder that retirement should be number 1 as time is the best ally for ensuring a funded retirement (and I agree). But so much can go wrong between when your child first starts working and retirement. Being able to manage emergencies so they do not impact their retirement is just as or more critical. Of course I will preach how dividend growth investing can help with both emergency & retirement savings.

Loans & Credit (Age 18+)
With a steady income stream comes the potential to borrow money. It is important to teach your child the different types of lending or credit debt so they can make proper decisions about debt. What is a mortgage, yield & interest, payments, early payoffs, auto loans, etc…

At the end of the day all of these life lessons are creating financial literacy for our children. If you expect a local high school to teach these things to your children do not count on it. I find it amazing that teaching financial literacy is not a mandatory class or set of classes during high school. A recent study by Champlain College summarized the issue and provides for an interesting read on the financial literacy of our youth of which I was not surprised to see my home state with a grade of F.

Living at Home

Allowing your children to live at home is probably the greatest gift to give your children as it gives them a tremendous head start. But there are horror stories about children living at home and in some cases never leaving. To make this work parents and children each need to change. Talk to your child about why they want to live in your home. If the answer is simply, ”I can’t afford to live on my own” then it is the wrong answer. Instead ask them to lay out some goals that start with the phrase “I want to live at home for X years to save for…”.

Also let them know why you want them to live at home. They need to understand that living at home is truly a gift and here is why you are offering such a gift.

With a little luck I hope to offer my children the opportunity to live at home and give the advice to save 60% of their salary for the first two years and to not touch it unless a big emergency or retirement comes along. After the first two years, they can begin saving the next 2 to 3 years for whatever they want in life. I strongly believe a Dividend Growth Portfolio can create an income stream latter in life that can help with emergencies and retirement.

Whether or not they heed the advice is another story but at least offering them the opportunity to live at home & save to start a new life is the best gift I can think of.

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