Kids and Money: Give Your Kids the Freedom To Make Their Own Financial Decisions

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It can be hard to give your kids freedom when it comes to anything, including their finances. But kids are sometimes smarter about money than we think they are. And even their most foolish spending mistakes can be valuable learning experiences.

Therefore, it could be wise to loosen the leash a little and let your kids experience both the benefits and struggles that come with making their own financial decisions.

They Won’t Always Be Young

As difficult as it may be, it’s often better for your kids to experience financial loss now than later. The stakes are lower and they may learn important lessons from their mistakes. For example, it may be better for them to splurge on an expensive new video game console now when they have limited financial responsibility than to splurge on more expensive items later when wasteful spending could hurt them more financially.

The fact is, the “real world” won’t always be easy on your kids, and you can’t cushion them financially forever. So let them make financial mistakes now while they still have a roof over their head, clothes on their back and food in the refrigerator.

Sure, it can be painful to watch your kids make poor financial choices and waste their money, but it might be for their own good in the long run. As they experience the consequences of wasteful spending, it’s likely that your kids will be more careful about their spending in the future — when it really matters.

Giving your kids financial freedom also helps teach them the value of money. For example, small expenses like a $5 Starbucks drink or $15 movie ticket may not seem like much. But they add up quickly and eventually your kids will notice their bank account slowly dwindling — and the value of a dollar will become more significant.

At first it might be hard for your kids to resist blowing their hard-earned paycheck on a $200 pair of Nike Air Jordan shoes or a $300 Coach purse But they might start to think twice once they realize the hard work that went into earning that paycheck. As they mature and come to realize what true financial responsibility as an adult looks like, they might better realize the true value of money.

Spend and Learn

A survey conducted by T. Rowe Price in 2017 revealed two important things when it comes to giving kids more financial independence. Not only are these kids smarter with their money, but they are also more financially honest with their parents.

Nearly half (44 percent) of the parents in the survey said they allow their kids to make their own spending and saving decisions. As a result, these kids tend to be less likely to spend their money as soon as they get it, lie about what they spent their money on, or expect their parents to buy them things. They also tend to be more likely to talk openly with their parents about managing their money.

Not expecting their parents to buy them whatever they want is often essential to a child’s overall healthy development. Once they realize they can buy items just as easily as their parents can, many kids will gain a tremendous amount of satisfaction and enjoyment from their newfound financial independence and power.

Resist Throwing Them a Line

As a parent, it’s natural to want to protect your kids from making financial mistakes. But financial blunders can help them grow and even give them more confidence in their saving and spending decisions later. The greater their confidence is now, the less anxious they may be when they enter the real world.

So if your son or daughter begs for a bailout due to making poor spending decisions, say no and let your child’s bank account suffer the consequences. He or she will grow from the experience, however painful it is, and may even come to you for financial advice. The more experience and good financial advice your kids get from you now, the better prepared they will be for the real financial world.

Finally, remember that if you model responsible financial behavior, there’s a good chance your kids will follow in your footsteps. They might even become more appreciative of the financial sacrifices you’ve made for them.

Even though it’s hard, take off the training wheels and give your kids some freedom to make their own financial decisions. They’ll appreciate it now — and might even thank you later.

Please contact us if you have more questions about raising financially responsible children.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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