A few years back I wrote an article that was not very popular with high school students. I suggested that a great financial lesson to teach a child or grandchild is to have them pay for at least one year of post-secondary tuition, ideally the first year. Among the many reasons is that the child becomes a partner in their own education and it helps them to take school seriously from day one.
Well, now my oldest child is in first year university and she has paid her first year’s tuition. So far, it didn’t turn out to be that difficult.
One of the key lessons is that I told my daughter of this expectation when she was in Grade 8 or 9 so she had time to work and save up money. Thankfully, she took on the challenge and she has been a good worker and saver along the way. I know that this will not work so smoothly with different personalities. One important benefit of having a responsible oldest child is that my two younger children looked at their sister and have said, “I better start working at 14 or 15 so I will have money to spend and have enough for tuition in first year.” The bar has been set and the expectation communicated.
This all sounds nice, but the important financial lessons are just getting started.
In the days before heading off to school, my daughter asked me a good question. Who will pay for my basic expenses that aren’t covered? Clothes, food beyond the meal plan, some extra spending money. We could answer one of three ways: 1) You are covering all of it; 2) We are covering all of it;
3) We will help cover it.
I know what I don’t want to happen. I have seen many young adults graduate from university without ever being responsible for their own bills and their own budgets. Suddenly at 22 or 23 or 24 the parents are surprised that their kids do not have any of these important financial skills. We view this as an important part of her university education.
What we want to do is to teach financial responsibility and financial lessons. After some thought, we decided that we were not comfortable with either of the first two answers. We were more comfortable with number three, but that still leaves important questions such as: How much will we help? How will you receive the help? What happens if you “run out of money”?
Here is how we answered them.
I reviewed this with my daughter to come up with what we thought was a reasonable budget for these expenses. I told her that we would review it in January to see how it was going.
I told her that I want to pass financial responsibility for her spending to her. That meant that we were going to transfer a monthly amount to her bank account at the beginning of each month. That was hers to use as she saw fit, but she is not getting any more money if she runs out. We don’t want to tell her how to spend her money, we want her to figure it out. If she wants to spend all her extra money on Zola, her African Grey Parrot (don’t ask), and nothing else, it is up to her.
If she does run out of money, it isn’t a crisis. She has a roof over her head and a food plan. She can last until the following month.
Another area for financial lessons comes from credit cards. I actually want her to get a credit card. I want her to understand that putting things on a card is simply deferred payment. If she is late paying, I want her to understand the interest rate. I want her to understand that a minimum monthly payment is not the amount owing.
If the credit card bill comes to her parents, she will not learn these important lessons.
There are a few cards with no fees that require no personal income, and can be obtained by a student as long as you are a Canadian resident over 18.
A great resource to find these cards can be found here:
Most importantly, we want to raise someone who appreciates that money doesn’t simply come from her parents. She needs to work for the money and understand its’ value.
She needs to learn to be a good shopper.
She needs to learn how to pay bills.
She needs to feel the consequences of being a saver or a spender.
Ultimately, just like the other parts of being a parent, we want her to develop the skills to be a strong, smart and independent person. The only way that will happen on the financial side is by giving her the freedom to succeed and fail financially. The best way I know to ensure financial problems is to not give your child any of these tools until they have a full-time job.
As someone once told me, “Little people, little problems; big people, big problems.” Just as in other parts of life, it is much easier to learn lessons from the little problems so that you don’t have to face big problems unprepared.
Ted Rechtshaffen, MBA, CFP, CIM, is president and wealth adviser at TriDelta Financial, a boutique wealth management firm focusing on investment counselling and estate planning. firstname.lastname@example.org