A Gift Better Than Money: Financial Literacy

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In my last post, I talked about a conversation with co-workers regarding life insurance and one co-worker said that he preferred a whole life insurance policy because he wanted to leave a legacy to his children. My co-worker is not great with his finances and lives paycheck to paycheck, so I can see why he thinks that leaving a large sum of money would have life changing effects.

Another co-worker said that she and her husband were ready to retire, but continue to work because they want to make sure they have enough to pay for their kids’ college tuition and to help out with their future wedding and downpayment on their first house. Yet another co-worker who is of retirement age continues to work to support her adult children who have failed to launch. While I won’t have to worry about how to deal with money matters with an adult child since my son just turned 2 years old a few months ago, this topic has been on my mind after having those conversations.

I can understand wanting to to help out your child, and I would want to help my child out with college and other milestones they have in life. It’s natural to want the best for your child. Millenials nowadays often have a heavy burden of student loans and an unstable job economy. I think it’s wonderful if a parent, who is financially able to, lends a helping hand to an adult child. However, I’ve seen with a few of my co-workers where they are financially support their adult child who constantly gets into trouble with money. Enabling an adult child who constantly gets into money woes is a disservice to them.

If every time your child struggles with financial issues, you step in to fix the problem, your adult child will never learn to deal with those financial issues. Inevitably, those same financial issues will pop up again, causing a vicious cycle, which the adult child has no incentive to remedy since the Bank of Mom and Dad is always there for a bailout. By always stepping in to financially help out an adult child who makes financial mistakes, you prevent them from learning to solve problems, from learning that there are consequences to bad financial decisions, and from learning to take responsibility. While the adult child might think that receiving money from a parent to help out with a financial crisis is a great gift, I think that the biggest gift I’d like to impart on my child is the gift of financial literacy.

Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. – Chinese Proverb

Shannon Ryan, who blogs at The Heavy Purse (which is a valuable resource for teaching children to be financially literate), recently wrote that one of the greatest responsibilities as a parent isn’t to tell her “children what to think, but to help them think for themselves, which means they have to learn how to make decisions, good and bad, on their own.” For another great resource to help you in raising financially literate children, check out the free e-book How to Teach Your Kids About Money, written by Laurie who blogs at The Frugal Farmer.

In my opinion, the best way to raise a financially literate child is to lead by example. Often times, children will learn bad financial habits from their parents and continue those bad habits in adulthood. Another great way to teach them to be financially literate is to talk about money and money decisions, and giving them an opportunity to make their own decisions and learn from their mistakes. I am always thankful that my parents have been great financial role models, and have taught me the benefits of saving and of investing.

In a recent news story, a wealthy real estate mogul passed away and left a large inheritance to his daughters. However, the inheritance has many strings attached. His daughters will receive $687,000 when they get married, but ONLY if her future husband signs a prenuptial agreement. Another $1 million is given if the daughters graduate “from an accredited university” and writes an essay describing what she intends to do with the money (the essay is subject to approval by the trustees appointed by their father). In the year 2020, the trust will pay out three times the daughter’s salary (apparently as incentive to earn a high income). What if the daughters became a stay-at-home-mom you ask? Well, that’s covered too. The daughter will receive three percent of the value of the trust, but the child must not be born out of wedlock. It is as if their father is trying to impart his financial values from the grave. Granted, it is a large inheritance, but if he had taught his daughters to be financially literate as children, then he should trust that they will be responsible to handle the money.

31 thoughts on “A Gift Better Than Money: Financial Literacy

  1. Income Surfer

    Nicely done Andrew. Financial literacy is near the top of the list, for our hopes for our son. I see plenty of people who fail financially, simply because of ignorance. If I can help keep that from happening to our son, I’ll do it.

    I feel bad for the trustees, in your story above. Imagine the future lawsuits and troubles, provided the heiress doesn’t get her way. I am the executor for a wealthy friend’s estate. I agreed to help her out, but I find it unlikely that some of her 6 kids won’t get pissed off and sue me. I hope you guys have a good week
    -Bryan
    Income Surfer recently posted…This Conversation Made My WeekMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Thanks! Teaching my son to be financially literate is definitely a priority for us as well. I agree with you about the trust…it is way too complicated and I definitely foresee complications and possible lawsuits. Issues with inheritances often causes conflict…all the restrictions that this guy put in it just adds to it. Hope everything turns out okay if you ever have to fulfill your role as executor!

      Reply
  2. Hannah

    Teaching kids to think for themselves before the age of 18 is one of the most critical roles of a parent. I certainly hope that we manage to teach our kids to think for themselves and to make wise decisions, so that we can trust them with a “launch fund” If you can’t trust your kids to make wise choices, then you shouldn’t leave them an inheritance.

    Reply
    1. livingrichcheaply@gmail.com Post author

      Yes, it definitely is a critical role of a parent, unfortunately, many parents themselves weren’t taught how to properly manage their money so they can’t teach their kids either.

      Reply
  3. Shannon @ Financially Blonde

    I hate when I see parents continue to give money to their kids rather than help them by not giving them money. It sounds awful, but the only way you can truly learn financial literacy sometimes is trial by fire. If you always have a safety net, then you will never understand the value of budgeting and spending within your means. I have a few clients that are working with me now who had/have parent safety nets and I tell them that they are essentially babies learning to walk for the first time when it comes to money. I know parents think they are helping, but they are doing the opposite and I see the results all the time.
    Shannon @ Financially Blonde recently posted…Don’t Let Your Self-Worth Impact Your Net WorthMy Profile

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    1. livingrichcheaply@gmail.com Post author

      They probably want to avoid the conflict which not giving them the money would cause, but ultimately that is the best thing they can do. I think most people learn best by experience so for many…trial by fire is necessary. You are doing a great job helping to teach these financial infants to learn to walk! I’m sure they will be thankful that they learned how to manage their money.

      Reply
      1. FF @ Femme Frugality

        I think there’s a fine line here. I had parents who couldn’t help, and there’s a big difference between intentional trial by fire and letting things get out of control. College costs are ridiculous. So I didn’t go. Got married twice without any financial help. Work really hard, and have been responsible with my finances since I was a teen. I can’t tell you how many times my one parent in particular has wanted to help. It’s painful for them. Not because I should learn better lessons and earn it, but because life can get hard, and that’s accentuated not when the safety net is withheld, but when it doesn’t exist.

        I’m 100% with you on imparting those financial lessons, but I don’t necessarily think help is always detrimental. They might just be setting their kids up to be able to be financially responsible with a head start in funding. Which may lead to a better ability to take care of them in retirement. :p
        FF @ Femme Frugality recently posted…Around the World in 80 Books: ItalyMy Profile

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        1. livingrichcheaply@gmail.com Post author

          I never said that financially helping an adult child is always detrimental and sorry if it came off that way. I would love to help out my adult child in the future if possible. As you mentioned, setting up kids with a head start is great. I only think it becomes an issue if the adult child lacks motivation or has a sense of entitlement because of the financial help. In my response to Laura Beth, I mentioned that there is a big difference having an adult child living at home who is saving up money or who is paying down student loan debt, versus an adult child who has no goals, no job and just spends their parents money without contributing anything.

          Reply
  4. Kristin

    Great post on a topic I’ve been thinking about recently. My parents didn’t have a lot of money growing up, but they taught me some really smart money lessons and habits, and I feel like that’s been so much more valuable. It is indeed a great gift!

    Reply
    1. livingrichcheaply@gmail.com Post author

      Thanks Kristin. Same with me…I don’t think you need to have much money to teach smart money lessons and habits.

      Reply
  5. Laurie @thefrugalfarmer

    Wonderful post, my friend, and thanks for the link ups! Because Rick and I were never taught financial literacy, it’s hugely on our hearts to teach it thoroughly to our children and others. We are finally taking the steps to change our financial tree, but we still have siblings that are enveloped in a money mess and can’t see the forest for the trees. It hurts us to watch them struggle, but you can’t make someone change their ways. This is why we hope our children’s “financial education from birth” plans will set them on a firm track to do things right with their money. Thanks again for the mention – much appreciated!
    Laurie @thefrugalfarmer recently posted…How to Feed Your Family for $400 a Month Part 2My Profile

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    1. livingrichcheaply@gmail.com Post author

      Thanks Laurie. That’s great that you working hard to change your financial tree and imparting wise financial lessons to your children.

      Reply
  6. DC @ Young Adult Money

    Great post, Andrew. I’ve often thought about how difficult it must be for parents to let kids fail and force them to figure things out on their own. I also realize what a huge responsibility and burden it is to have children. My wife and I have quite a bit of student loan debt and are determined to pay for a big chunk of our kids college education. It’s having an interesting effect, though: it makes us want to delay having kids. I personally wouldn’t mind waiting until I’m in my mid- to late- 30s to have kids, though I think we’ll have them before then. In reality it shouldn’t be so much about our finances but instead about how much financial literacy we can impart on our children. After all, even if we had millions in our bank account it won’t impact how financially literate our children are.
    DC @ Young Adult Money recently posted…15 Ways to Make Extra Money for the HolidaysMy Profile

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    1. livingrichcheaply@gmail.com Post author

      I wouldn’t put off having children just because of the student loan debt…I’m sure you guys will manage fine. Personally, I think it’s tough having children young (like in your early to mid 20s) when you’re just starting your career and really just finding yourself as a person, but I wouldn’t want to wait until my late 30s either if it was choice.

      Reply
      1. DC @ Young Adult Money

        Student loan debt is definitely not the only reason we are waiting, but it’s not a bad one imo. My wife has about 2 1/2 years of grad school left and I may go back to get my MBA as well. Even if I don’t get my MBA, I have a lot of side hustle stuff I want to do that I simply would not be able to do if I had kids. Totally understand why people have kids when they’re young but I’m definitely in no rush at all (and thankfully my wife is on the same page!).
        DC @ Young Adult Money recently posted…15 Ways to Make Extra Money for the HolidaysMy Profile

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        1. livingrichcheaply@gmail.com Post author

          Yea, I went to law school part-time in the evenings and having a kid to take care of would definitely have made it near impossible. My wife also went to grad school part-time in the evening (I had graduated by then), and we took that into account and waited until afterwards to start a family.

          Reply
  7. Shannon @ The Heavy Purse

    Thanks for the shout-out and kind words, Andrew! I appreciate them! I agree that financial literacy is one of the greatest gifts we can give our kids. It is the gift that can change their entire life because every single child grows up to handle money.Those who have a healthy relationship with money and know how to make value-based decisions with their money are leaps and bounds ahead of their peers.
    Shannon @ The Heavy Purse recently posted…3 Steps to Help Kids Learn To Think for ThemselvesMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Great point…every single child grows up to handle money so it’s very important that they know how to do it responsibly.

      Reply
  8. Laura Beth

    Hey Andrew,
    I agree it’s vital to teach kids financial literacy. I may not have done so well in this regard with my own kids, as my millennial daughter still lives with me. It’s a difficult call, to help or not help out your child when they need you financially.

    Thanks for a great post!
    Laura Beth

    Reply
    1. livingrichcheaply@gmail.com Post author

      I don’t think having a millennial daughter living with you is a bad thing. I also don’t think helping out your child financially is a bad thing either…it really depends on the circumstances. If the child is just living at home, without any goals and no job, and spending mom and dad’s money, that would be a problem. But if they’re living there so that they can save up some money or to help pay off student loans, then that’s a different story.

      Reply
  9. Lance @ Healthy Wealthy Income

    Both of my grandparents were wealthy, one was self-employed and the other received a large inheritance. They passed on and left nothing behind to anyone and good for them, it was their money. I didn’t care because I care more about people than money, but I sure had some shocked aunts and uncles who had “plans” to just get money and make everything right. I’ve got my own money and I’ll teach my daughter to do even better than me.
    Lance @ Healthy Wealthy Income recently posted…Extreme Saving: How to Save Half of Your MoneyMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Inheritances seem to cause a lot of conflict. I’m glad your grandparents enjoyed their money…it’s theirs after all.I’m hoping to teach my son to do even better than me as well.

      Reply
    1. livingrichcheaply@gmail.com Post author

      It’s great when parents teach that skill at a young age…you definitely get a head start.

      Reply
  10. John

    I’ve enjoyed the opportunity to pass along what I’ve learned (and the mistakes I’ve made!) regarding personal finance to my kids. Hopefully they’ll take the good and NOT do the bad!

    Financial education is sorely lacking in our country, even for the most basic personal financial principles. Hopefully it will change over time, but in the meantime it’s up to us to make sure our kids (or nieces and nephews if you don’t have kids) understand it’s importance as early as possible. The compounding lost to starting late can’t be easily made up!

    Great post and discussion!

    John
    John recently posted…The Financial Coaching Process ExplainedMy Profile

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