The VERY BEST Financial Gift we could give our kids is to not be dependent on them financially later in our lives, while they are trying to raise and educate their kids.
Most parents love their kids dearly and would die for them. My question is always – “Should We?” Here are some decisions that start out with good intentions but could actually end up having bad consequences for our loved ones.
- Getting a Parent PLUS loan that the student has to pay.
There is a reason that there is a limit on how much the government will lend to your student in their name. It’s because they should not have a massive burden coming out of college, and most students coming out of college cannot afford to pay more than the federal lending limit to them.
Many parents are struggling to fund college AND save for retirement at the same time. If you don’t have enough money to do both, then it is probably unwise to expect your children to pay back Parent Plus Loans that you have signed for.
Remember that if we have not saved enough for retirement and have depended on Parent loans to get the kids through college, then we might be reliant on help from our kids when we age. Is this what we really intended? Thanks a lot Dad!
- Whole life insurance (The wrong type)
Whole Life insurance could be a great product if structured properly, but on the PARENTS. I have seen some policies purchased with kids insured, from the same company that they buy baby food from. These are horribly inefficient policies and, in most cases, a bad idea. Most times, insurance on young kids is much more expensive than insurance for parents.
Firstly, we should consider what the purpose of the insurance is. If we purchase with the kids as the insured, it only pay out if the child dies, which means it is pays out for your future grandchildren 2 generations away! Is that what we meant to happen? We should consider who we want to protect?
Typically, we would want to insure the parent who is the main breadwinner, so that if something happened to them, their spouse and children would not have to face devastating financial consequences. That way they would be leaving a positive legacy for the family and not a burden.
I STRONGLY advocate for good insurance, and personally practice what I preach so feel free to give me a call if you would like to see what is wise for your family.
- Timeshare.
If you want to purchase timeshare, do it for yourself, and accept the long-term consequences, but don’t burden your kids with it.
Here is something to think about:
* The Internal Revenue Service values your timeshare, and all timeshares, as worthless.
* No legitimate charity wants your donated timeshare. Period.
If so, why would we think that our timeshare has any value. It has to be paid for each year and most people cannot GIVE their timeshare away. Don’t burden your kids by buying timeshare for them. With technology today and Airbnb we have so much more flexibility without the burden.
- Champagne Taste on a Beer Budget
If our children leave our house with the expectation that everyone can go to a private school, vacation in Hawaii or France every year, shop at expensive stores and drive expensive cars, then we have probably done them a disservice.
Their first shock comes when they see their first paycheck, wonder why so much of it has gone to taxes and other deductions, and the realization that they have to pay for their own car and place to live. Sometimes we love to spoil our kids too much, but it ends up hurting them in the long run. The worst is when they realize that we cannot retire because we didn’t teach them.
- Parent Financial Insecurity –I have saved the toughest one for last.
Remember the lecture we always get when we fly? “In the unlikely case of an emergency, put your own mask on before you help your children” This is the way it should be with our finances.
I speak to families all the time who have parents who are not financially stable, who could not control their spending, who did not save enough for retirement, or didn’t have life insurance when needed or Long Term Care, who are in such bad financial shape that their children spend their nights worrying about their parents.
One of the most wonderful financial gifts that we can give to our kids is our own financial security. That way we can be a blessing to our kids and not drag on their lives.
As a counter to the perhaps perceived negative connotation of what we should perhaps NOT be doing, here are some things that we might think of that we SHOULD be doing.
Five smart financial habits to teach our children early in life – can set them up for a future of success.
Someone told me once – the way to teach our kids the value of money, borrow some from them
- The miracle of compounding – the earlier the better – As parents, we often wish we knew this
- We Value What We Earn, Not What We Are Given
Allowances – Given or Earned? Allowances are not just about money, but what lessons we could teach our kids in the process. Humans learn a lot when we earn things because of effort and dedication, rather than just being given something. My daughter once worked really hard to earn a surfboard by walking around our neighborhood selling cookie dough for her school. I will never forget when I asked her how many people said “No” to her, she told me “I don’t know dad, I was just focused on getting 75 people to say “Yes”
It is a valuable lesson to see firsthand how effort translates into earnings and this in turn translates into the behaviors to become an “earner” in life.
- Teach Your Kids How to Lose Money
Yes, lose money. You see, no matter what courses they take in high school or college around personal finance, there is no greater teacher for all of us in life on what NOT to do with our money until we experience losing some money.
No matter which custodian we help them set up a brokerage account with, perhaps we could get them started saving into some type of investment and sit down quarterly with them to track it and teach them how their investment is performing.
Have them pick one stock of their favorite company and even if they lose money, they win in the long-term gaining interest on how investments work and how to make good investment decisions.
- Spending – Questions to ask first
- Do I want it?
- Do I need it?
- Can I afford it?
If the answer to any of these is “No”, then probably think twice about it.
Only once we have SAVED money, should we use it for our WANTS
- Giving
One thing that I learned in life is that giving early when you don’t make much, is really helpful rather than trying to start giving when you are making a lot. It just seems such a lot to get going when the number is high, but when it grows incrementally it becomes a great and rewarding habit.
I go back to my first statement – Most parents love their kids dearly and would die for them. My question is always – “Should We?”
If you would like to discuss how you can make wise decisions for Retirement Planning and College Planning for your family? Please don’t hesitate to contact Dave Coen to set up a no-cost consultation.
You can see more about my role as a Financial Advisor with SageView Advisory HERE
Tel:714-813-1703
dcoen@sageviewadvisory / davec@collegeplanningamerica.com
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