Let’s start by saying that it is nearly impossible to rein in the amount of money your kids spend. The caveat is that the impossible can become possible IF a few “standards” can be set – the earlier in life the better.
What are “standards”? These are concepts that can be discussed with kids of all ages – or dictated, with discussed definitely preferable! The concepts can be educational for the immediate time frame, while perhaps also becoming life lessons.
Case in point: three years ago, a young person asked for my advice upon graduating from college at age 22. This person, now 25 years-old, made my entire year last week when she told me that (over three years) she has accumulated $54,200. The kicker is that this awesome young person lives in one of the more expensive cities in the USA, which means income taxes are being paid at Federal, State and City levels.
The $54,200 amount is held in two accounts:
- $25,000 in an Individual savings/brokerage account at a low-cost provider
- $29,000 in a Roth IRA.
This person – who also has zero debt – saved this amount of money by knowing how not to SPEND money. Said another way, this person learned critical spending habits at some point in her life – and over the course of years. (It also needs to be said that this young person is not earning “fabulous” amounts of money in the IT or financial world; and this person went to a state university.)
Years before this person learned how to save, she must have been taught or observed (most likely a combination of the two) the concept of prioritizing spending – otherwise known as sacrificing having ALL the best of everything in order to have a handful of necessary and nice things. Here are a couple of actions this person took three years ago at age 22 that leant toward not over-spending:
- choosing not to own a car as a 22- to 25-year old (sacrificing easy transportation – there is almost always someone with whom to share a ride)
- having multiple roommates while young and single (sharing expenses)
- not eating out excessively
- local outdoor sports and entertainment (make the most of these activities for the simple joys in life – while saving big bucks)
For parents today, how to get a “reined-in spending mentality” to take root in young kids??
- Setting an example of not having every “shiny, new thing” (psychologists have written books and books about happiness wearing off in a matter of days or weeks of getting a new item or service)
- sharing details of savings accounts in kids’ names – from gifted monies accumulated since the child’s birth
- establishing firm, early boundaries around balances in these “kiddie” or custodial accounts (part of an adult custodian’s assigned job)
- occasionally but not overly often, together with a child, buying small or inexpensive items with kids’ monies – to exhibit the rewards associated with saving and then spending, still leaving more savings for the future
- simply saying NO to new purchases until joint savings are accumulated between parents and kids – for “skin in the game” by the kids.
Reining in spending is hard enough as an adult. Starting early with educating kids about prioritizing spending can create a lifetime of financial independence and success – while reducing regret and increasing joy.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.