Helping your children - a hand up, not a hand out.

As you get older, the two most common and costly risks to your retirement goals are your adult children and relationship breakdown (see Chapter 29).

It’s natural to want to help your children. Many people enjoy seeing their children benefiting from their generosity, and living to see this is a joy. But remember, some gifts, no matter how well intentioned, may be something that will hurt your children in the long run – especially if the gifts encourage a lifestyle your child cannot afford. You want your gifts to encourage independence, not maintain a dependency.

So, how can you support your kids to achieve their financial potential without undermining the necessary life skill of money management?

To raise a financially responsible kid is to raise a socially responsible one. Whatever you teach them about the environment, you should be teaching them in equal part about managing money well. Do you want your children to inherit your work ethic or the bludger ethic? I have seen parents scrimp and save to better their position and give themselves a chance for a comfortable retirement, only for one of their useless children to suck them dry while their parents are unable to stop it. It is a parent’s job to train their kids in the competencies they need to grow and keep wealth.

I am not suggesting that you shouldn’t be generous with your children. If you are going to be generous, though- and even if you aren’t-bear in mind that as a parent you play a huge part in the financial makeup and ongoing success of your children. A hand up is always better than a hand out.

The first step is to be a good example. Get your finances in order and start living within your means with a strategy to own a house, kill the mortgage and sort your retirement, or at the very least be getting ahead financially. Then you need to teach your children. This is where most people fall short. They are their children’s worst enemy when it comes to financial fitness.

Being generous with your kids can be just what you need to reach their potential. But, in most instances, it will become the very thing that derails their financial growth. I am seeing more and more children enabled by their parents to under-achieve financially, whether the parents have wealth to spare or not.

Research and common sense confirm that children given too much too soon tend to develop a distorted sense of entitlement, which makes it difficult to cope with the roller coaster of life. The financial environment you provide for your child while they are growing up will be one of the most important influences in their financial fate. This is a huge responsibility for parents who also lack the necessary life skills of successful money management.

The behaviour you instil in your children will stay with them long after they leave home. This makes it doubly onerous as, on an emotional level, you don’t want them to go without, especially if you can afford to be generous.

As a parent, you need to make sure your children know how to:

• Save
• Spend wisely
• Earn money
• Talk about money

The parents of daughters need to take greater care to discharge this responsibility, as too many adult woman are still dependent on their partner to create financial success. Woman might start to care more about gender inequality if we showed them how to develop plans without relying on someone else.

Reality check: Over-indulging your child with material possessions will almost certainly seal their fate as shoppers and make it very difficult for them to cope with instances of delayed gratification. Kids often come home and cite things others have or advertising they have seen as justification to their wants. If your kids do this-and mine are just starting-then simply say, “We can afford it, but that is not how we choose to spend our money in this family.”

Children tend to be disconnected from reality of their family’s financial situation, usually because parents enable this-often because the parents are also disconnected. For all the families I work with, I encourage age-appropriate honesty with the kids. If the money is running out, explain this and explain what you as a family need to do to fix it, the reasons why and the rewards in the end. Don’t devalue this critical learning experience.

We teach our children to try their very best at everything they do. But what if they lose? What if they are aiming to be top and they fail? Learning to work through failure constructively is just as important as learning to be a humble winner. Financial failings are some of the best learning experiences for everyone, including your children.

Some parents don’t want to share their financial situation with their kids because they are embarrassed. Yet, because of that, you should. We are accountable to our children. They are trusting us to do the right thing by them-socially, physically and financially. If this are tight, demonstrate this to your kids. Show them that when the money runs out it is gone. Teach them that credit is not their friend. Get your house in order. The happy side effect of teaching your kids good money habits is that you, as their parent, will need to lift your game to lead by example. Everyone wins!