My cousin Loriana sent this to a bunch of us awhile back and it really made an impression on me. I thought the author had some neat ideas and priceless advice in this day of credit cards and disposable incomes. Enjoy!
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12 Ways to Make Your Kids Financially Savvy By JONATHAN CLEMENTS December 17, 2007; Page R1
Ten years after I am dead and gone, I suspect only two people will give much thought to me, and their names are Henry and Hannah.
They're my legacy, so I hope they thrive -- and I sure hope they remember me fondly.
Henry and Hannah are, of course, my children, now ages 15 and 19, respectively. Like any parent, I spend a lot of time thinking about my kids, including how I can best help them financially.
This isn't simply about coughing up dollars and cents, though the sums involved have been frighteningly large. Rather, what it's really about is passing along values.
Yes, I want my kids to be financially successful. But mostly, I want them to be competent, contented managers of their own money, so they don't spend their lives agonizing over their finances and dogged by foolish mistakes.
I am not claiming to have the road map for every parent. We all have different values, different incomes and strong ideas about how best to raise children -- and you will likely scoff at some of the things I've done. With that caveat, here are a dozen ways I have endeavored to help my kids financially.
1. WAITING UNTIL LATER
If children are to grow up to be successful savers and investors, they need to learn two key skills: How to delay gratification and how to take risks prudently. The first is easily the most important.
Indeed, the self-control needed to delay gratification is associated not only with good saving habits, but also with things like succeeding in school and coping better with frustration and stress.
Yet this isn't an easy skill to teach. Henry and Hannah grew up spending their parents' cash, so they didn't have much incentive to curb their desires. My response? Make them feel like they're spending their own money.
One of my early tricks was the soda game, which I learned about from a reader. When my children were young and we went to restaurants, I would give them a choice: They could have a soda or they could have $1.
Henry and Hannah ended up drinking a lot of water.
2. ASKING THEMSELVES
Emboldened by the soda game's success, I looked for other ways to apply the same notion. The breakthrough came when Hannah was 14 and Henry was 10. That was when I opened a savings account for each of them. The accounts came with a cash-machine card.
Every three months since then, I have deposited pocket money for them in their savings accounts and, as they have grown older, their clothing allowance as well. That way, they've had to learn to budget for a three-month period. More important, they no longer ask me for money.
Instead, if they want to buy something, they have to ask themselves.
The effect has been startling. Henry and Hannah almost immediately became more careful spenders.
Sound manipulative? You'd better believe it. But I also think of it as financial self-defense. Suppose Henry and Hannah don't learn good money skills and grow up to be financial deadbeats. If they ended up deeply in debt, I can't imagine not helping -- at which point their financial problems would be mine.
3. TALKING THE TALK
I haven't just molded Henry and Hannah with financial incentives. I have also used family stories.
Values are passed down to our children in the stories we tell. My children may live in an affluent household in an affluent town. But I want them to know that their mother and I struggled financially, and that they will likely have their own struggles.
So I talk about the mouse- and cockroach-infested Brooklyn apartment where we all lived while their mother worked on her Ph.D. and we squeaked by on a junior reporter's salary. I tell them about the beaten-up '76 Camaro that used to stall if the traffic light stayed red too long. I recount taking them as toddlers to the "toy museum,"
otherwise known as FAO Schwarz, where we would play with the dolls and the trains but never buy.
Instead of regaling my children with these tales, I could simply lecture them about the virtues of thrift. But the stories pack far more punch.
4. SCOFFING AT WEALTH
I have also encouraged my kids to be suspicious of displays of opulence, whether it's the big house, the fancy car or the designer clothes. The fact is, this sort of spending doesn't lead to lasting happiness, but it can create a heap of financial stress.
In belittling conspicuous consumption, I may be a little too strident, but there's a reason. Henry and Hannah may have grown up hearing about the dilapidated Brooklyn apartment. But I grew up hearing a far more powerful story, about my maternal grandfather and his four siblings, who in the 1940s each inherited what today would be millions of dollars. My grandfather's siblings quickly blew the money on fast cars and high living. My grandfather blew his money more slowly, on horses and cattle farming. Either way, the great family fortune was gone, and reckless spending was largely to blame.
5. COMPOUNDING FOR DECADES
When my children were young, I opened a variable annuity for each of them. This isn't a product I particularly like, because many have outrageously high annual expenses and charge back-end sales commissions if you sell within, say, the first seven years.
Still, there are a few no-load variable annuities with low annual expenses, notably the offerings from Fidelity Investments and Vanguard Group. Moreover, unlike with an individual retirement account, you don't need earned income to fund a variable annuity, so you can open an account for a toddler. Today, my kids' low-cost variable annuities are each worth some $37,000.
I have long been captivated by the idea of starting Henry and Hannah on the road to retirement. Think about it: The dollars I invested when they were youngsters might enjoy six decades of tax-deferred compounding. That's enough to turn $1 into over $100, assuming an 8% annual return. And thanks to the tax penalty on early withdrawals, my children will be discouraged from touching the money before they are 59½.
6. GROWING FREE
There are far better investment vehicles than a variable annuity, and my chance came a few years ago. Hannah got a job at a local restaurant, which meant she had earned income. That allowed me to open a Roth individual retirement account for her, which will give Hannah tax-free growth.
Instead, I could have funded a regular IRA, where withdrawals are taxable but you get an initial tax deduction. That tax deduction, however, wouldn't have been worth much, given Hannah's low tax rate, so the Roth seemed like a better bet.
The money I've stashed in my kids' variable annuities and in Hannah's Roth IRA won't be nearly enough to pay for their retirement, especially once you figure in inflation. But fully funding their retirement was never my aim. Rather, the accounts are intended to be a powerful example, showing my children how money will grow if they are willing to sit quietly with a diverse collection of low-cost funds.
7. HEADING HOME
When I bought my first home, my parents helped me financially, and I want to do the same for my kids. To that end, I have invested $15,000 for each of them.
Even with a decade or more of growth, that $15,000 probably won't be nearly enough for a 20% down payment. But it will give them something to build on.
I stashed Hannah's $15,000 in a target-date mutual fund that's geared toward 2010, while Henry's money is in a 2015 fund. I bought those funds knowing my kids probably won't buy homes until five or 10 years after those dates.
My thinking: Target-date funds typically have around half their money in stocks as of their target date, and then they continue to become more conservative in the years that follow. By the time my kids need their down-payment money, their target-date funds should be largely invested in bonds.
8. KEEPING SCORE
When my kids buy a house, they won't just need a down payment. They will also want to have a good credit score.
With that in mind, I listed Hannah as a joint account holder on my Visa card earlier this year. That meant the card's credit history was added to her previously blank credit report.
Suddenly, she looked like a model financial citizen. That allowed her, a few months later, to apply for a Discover card on her own. I now have her on a strict regimen, where she charges a small sum each month and dutifully pays it off, thus slowly building up a good credit score.
When Henry reaches college age, I will go through the same nonsense with him. This, alas, is necessary nonsense. The reality is, a good credit score will help my kids get a lower mortgage rate, lower insurance premiums and a host of other financial benefits.
9. VOWING TO HELP
Full disclosure: I am divorced. But even before my marriage broke up, I was horrified by the way many families blow $20,000 or $30,000 on a single day of celebration for a wedding.
To put such spending in context, consider this: According to the Federal Reserve's 2004 Survey of Consumer Finances, more than 96% of households headed by someone 65 to 74 had some savings -- but the median value of these financial assets, including things like checking accounts, stocks and mutual funds, was just $36,100.
Spending $30,000 on a party is not one of my values, and I've made sure my kids know it. I have told them I will give them $5,000 toward a wedding or at age 30, whichever comes first. What if they want the $30,000 wedding? They can ask their mother.
10. LENDING A HAND
While an expensive wedding is low on my list of priorities, a good education ranks near the top. My ex-wife and I long ago agreed that we would pay the full cost of our children's undergraduate education.
Again, this was something my parents did for me, and we all tend to be heavily influenced by our parents' behavior.
There is, however, a limit to my generosity. I have told Henry and Hannah that, if they want to go on to graduate school, they will have to take out loans. I may relent somewhat when the time comes. But I think that there should be some cost to staying in school, so I am not inclined to continue footing the full tab.
11. SETTING EXPECTATIONS
As you might gather, I have talked to my kids a fair amount about money. They know they will graduate college debt-free, they will get some help toward a house down payment and they will receive just $5,000 toward a wedding. They know about the retirement accounts. I have also promised them $5,000 upon graduating college, to get them started in the world.
No doubt some folks will think I'm overly generous, while others might consider me cheap. Many will question my priorities. For instance, folks have told me that they would have skipped the retirement accounts and allocated more toward a house down payment.
But, frankly, the precise sums aren't that important. Instead, what I am striving to do is set expectations. By detailing everything to Henry and Hannah, I have made it clear where I think my financial responsibility ends and where theirs will begin.
12. GETTING EDUCATED
Along the way, I have also endeavored to teach my kids about sensible investing. It's been a slow process.
For instance, earlier this decade, I tried a family investment contest. We all picked a mutual fund, I invested $50 a month in each and then we tracked who fared best. I thought the competition would grab their interest, but it wasn't a great success. Maybe Henry and Hannah were too young.
Indeed, I have continued to show them their mutual-fund statements as they arrive in the mail, and my kids have grown more interested as they have grown older. They have also become more curious about the financial markets, and I can now chat about investing for at least 30 seconds before they reach for their iPods.
I hope enough of this will stick, and they will grow up to be prudent managers of their own money. The potential savings are huge. A financial adviser might charge 1% of a portfolio's value each year, and then recommend mutual funds that cost another 1%. What if my children learn to build their own index-fund portfolios that cost a mere 0.2% a year? When their portfolios hit $1 million, they will pay just $2,000 a year in investment costs, instead of the $20,000 they would be paying if they used an adviser. And, with any luck, they will remember whom to thank.
I think I'll dub 2008 The Year of the Smile. There have been so many reasons to smile this far, and for heavens sake, it's only the end of January. For instance...this sweet little pouty lip above. Picture if you will: holding little Joseph in your arms, thinking about straightening up the kitchen and what will be for dinner, glancing around the to asses the dirty bottle situation, then you look down at the sleeping baby and almost as if on cue he sticks his little pink bottom lip out to completly melt your heart. Clearly he is not interested in dirty bottles. This is Josh's favorite face, and a close favorite for me.
The Year of the Smile also includes fun couch time with mom in the mornings. We like to sit around (or lay...I am not particular) and coo at each other. It's kinda our thing.
The Year of the Smile includes lots of tongue sticking out, too. Lots and lots and lots! So much that sometimes I have to sponge down his tongue to re-wet it. It's good for when I have to send mail...even though he get a little squirmy when he sees envelopes coming.
Of course, this is the year of every one's smile - not just Joseph's. Basically, it's just easier in life to smile and I think we should all try it. I don't usually catch myself scowling (because I just don't scowl really), but if I do I will remember to stop and think of something nice. And smile.
If I need something to think about stop scowl-face in it's tracks...then I might think of stripes. Fuzzy, warm, footed stripes. I've really always been a fan of stripes (vertical of course), but now that I see them on Joseph I like them even more. I was just telling Josh this the other day as we admired our "handy work". I better watch what I say - if Joseph is ever in the slammer wearing stripes this will have bitten me in the butt.
Something else to smile about this year? Cake of course! Betcha didn't think I was going to say that! It's very random but some how I started thinking of cake and why isn't it a reason to smile? Ahh yes, I know why I was thinking about it. There is some over there on the counter from mom (Louisiana crunch pudding cake) and I was eyeing it earlier. I guess it was my subconscious calling out as I write this.
The Year of the Smile will include good health. Because happy people who smile a lot are less sick. I know it for a fact. I know it for a fact in my book, anyway. Who knows if it's been proven but since this is my blog I will make up whatever I want. I think you better beware of what you read here since apparently I am making things up now.
Oh, man...where is that letter I needed to mail!? Here I come little Joseph, HOLD STILL!! Oh--how about the Year of the Smile including snail mail? That always makes me smile. It amazes me every time I actually do get real mail that isn't junk since we all email so much these days. There is nothing wrong with that though. Thank goodness for the internet that brings me email! Thank goodness for the mailman who brings me letters! Thank goodness for the stork that brings me babies!
Speaking of mail...look what we got yesterday! New cowboy boots! Yeehaw! Josh's cousin Adam and his wife Aurora sent a whole cowboy themed package to the new baby. These boots were sooo cute that I slapped them right on him and started taking pictures. Additionally, and I guess this wouldn't count for the boys out there (unless you have a Brokeback Mountain lifestyle), but cowboys make me smile for sure! Big grown up ones in nice jeans are good, but mostly my little cowboy in his boots and sheriff's badge bib. And I like horses that come with them! 
This year will include lots of laughs. Big throw your head back and wave your arms around laughs! Laughs that make your face look kinda crazy with a funny look in your eyes. We can learn so much from babies! I am laughing at that picture right now!!
So I think all of us here in the Blachly household agree that 2008 will be great. We are going to take the bad in stride and welcome new beginnings in where we see fit. We are going to sip delicious hot teas and take in the aroma - instead of battling with neighbors who keep dumping their trash in our cans. We will "teach" Joseph about classical music while drinking bottles of delicious milk. We will always keep family close, and not forget that anything can happen at anytime. We will use troubled and hard times to develop our patience and devotion to each other. We will continue to love each other and remember how far it has gotten us. And we will change lots of poopy diapers and try not to gag. I thought a little comedy relief was in order! So, here comes February and we hope it's as great as January - for each and everyone. 
