I want to help my daughter grow into being a financially literate and responsible adult. But I don’t know how best to do that. As with most aspects of parenting, we’re making it up as we go.
As I reflect back on my own childhood, I don’t remember any overt financial lessons from my parents. Instead, more was caught than taught.
I credit my financial success with observing my parents mostly positive behaviors around earning, saving, and being generous with money. My biggest financial mistakes were made because, like them, we believed the technical aspects of personal finance were complicated and better handed over to a “trusted professional.”
Aside from modeling good financial behaviors, what can we do to help our kids grow into financially responsible, and eventually, financially independent adults? Doug Nordman and his daughter Carol Pittner co-authored a new book, Raising Your Money-Savvy Family For Next Generation Financial Independence, to answer this question.
JL Collins, who raised a now adult daughter of his own, wrote the foreword. He opened with the thought, “I should have written this… I knew there was a need for such a book.”
Many parents and grandparents want to help the next generation be better with money to give them a leg up. Parents may someday rely on their kids to help them in the future. So raising financially literate, responsible, and moral adults can also be an investment in their own future.
Collins closed the foreword with a compliment to Doug and his wife Marge after reading the manuscript. “Reflecting back… they did (it) better, more completely, and with more thought. Those are profound differences.”
I recently had a chance to read Raising Your Money-Savvy Family For Next Generation Financial Independence. Can this book help you create a more money-savvy family?
Doug retired in 2002 at 41 years of age when Carol was a grade schooler. Along with his also early retired wife, they’ve since raised Carol. Doug starts each chapter with the philosophy and tactics he and Marge used to teach Carol about money at different phases of life.
Now in her late 20’s, Carol has successfully completed college, launched into a career, married, and recently became a parent. Her young family is already approaching financial independence.
Carol shares her perspectives on what techniques excited her and were appreciated at the time she was experiencing them. She reflects on what she now realizes was important with the benefit of hindsight. She also shares what lessons missed their mark.
The back and forth writing style makes the book an enjoyable and entertaining read. It also gives unique perspectives to these different phases of learning personal finance, rather than an authoritative, top down, “here is what I did and you should too” approach.
Goal Directed, Progressive Approach to Learning to Manage Money
Doug and Carol start at the beginning. Chapter 2 is titled “Your Child Is Ready To Learn To Manage Their Money When They Stop Eating It.”
They take us into the future, sharing how they’re planning for a future when the tables may turn and, Carol may have to manage the finances for one or both of her parents. Chapter 10 is titled “Generational Wealth and Estate Planning.”
In between, they walk through a thoughtful approach to major milestones in helping a child, adolescent, and eventually young adult to develop a healthy relationship with money. This includes ideas on allowances, first bank accounts, learning to use credit cards, paying for college, and eventually cutting the cord and helping your young adult launch into independent living.
Doug and Carol thoughtfully organized concepts in chronological order based on goals and complexity rather than age. A few common themes run throughout the book.
- Kids should be taught to manage (i.e. use) money, not just save it.
- Money is emotional. You’re teaching your child to manage their emotions as they deal with increasingly larger amounts of money and more consequential decisions.
- Kids only learn fiscal responsibility through episodes of fiscal irresponsibility. You have to allow them to make their own decisions and own the consequences.
- Experiences should be structured to be positive and understandable for the child.
- Parents need to build an environment of trust and consistency.
Learning From Other’s Experiences
I enjoyed learning from Doug’s analysis of what he was trying to accomplish as a parent. Carol’s perspectives were also enlightening. They both challenged me to change my way of thinking.
An example that is extremely relevant in our household right now was learning about the Nordman’s approach to using an allowance to teach Carol about money.
Our daughter is at an age where we have been discussing starting to give her an allowance. Our initial inclination was to make her earn money by doing chores.
The Nordmans believe that kids aren’t motivated by money in the same way adults are. Giving or taking away privileges was a more effective way to incentivize behaviors.
They decided that they would give Carol an allowance regardless of completion of chores or good behavior. They wanted their daughter to have money, use it, make choices and mistakes, and learn from them.
An example from Carol’s perspective that was impactful was understanding how important it was to be given autonomy, privacy, and trust to use her money as she saw fit. She made mistakes (as we all do) in a safe environment. Consequences were relatively small, which prevented much bigger mistakes in her adult years.
That perspective resonated with me. It’s something Kim and I, who tend to be control freaks, will make a conscious effort to implement with our own daughter.
This book also reinforced and gave more structure to my own beliefs and ideas. An example is what the Nordmans thoughtfully labeled “profit sharing.” Though not called that in our household, it is one I recognized from my upbringing. I’m sure we’ll use this with our own daughter as well.
The concept incentivizes the child to look for ways to decrease spending or increase income for the household by splitting the profit with them as a reward for their efforts. This was similar to the approach my parents successfully implemented to pay for my bachelor’s and master’s degrees.
I managed to use a relatively modest amount of money to complete both degrees and graduate with a slightly positive net worth. I accomplished this through a combination of frugal living, working throughout college, and finding scholarships.
My parents allowed me to keep what was left to get a head start on my adult life as agreed upon. My wife and I plan to use a similar approach to help our daughter get started.
Reading about how the Nordmans started using the profit sharing idea throughout Carol’s life has my brain exploding with ways to get our daughter to help us save and make money while developing good financial habits.
We used to clip coupons for groceries when starting out, but no longer do. Having our daughter do this will be a great way to save money we would have spent. Simultaneously, she’ll learn a lesson in frugality. I will be happy to pay her what she saves us at the grocery store.
On the income side, we have a number of items that I’ve been meaning to sell but never get around to. Listing items on Ebay, Craig’s List, or the local classifieds would be a great ongoing job for a kid. It would help us keep the house decluttered while helping her improve computer literacy and learn to negotiate. This will be a great way to put a few extra dollars in our and her pockets.
I also appreciated the way they taught Carol about saving, investing for a longer term goal, and compounding. They started with the “Bank of Carol” and later progressed to the “Kid 401(k).” We’ll use a version of each after reading about them in the book.
Tackling Tough Issues
The book has strong opinions on two issues that I find challenging as someone in the “sandwich generation.” I’m concerned both with raising my child and helping my aging parents in a financially responsible way.
- How does retiring early impact children who don’t see their parents going to work?
- How do you handle money and relationships with aging parents?
Retiring Early With Younger Kids
On the first, Doug writes bluntly, “Parents, brace yourself for a bit of news: it’s not about you… (kids) care about how they’re keeping up with their school peers in their own personal society, but they don’t pay attention to your climb of the corporate ladder.”
He also opined that kids place a much higher value on how much time and attention you devote to them than what possessions you have, as long as basic needs are covered and there’s enough money for some fun.
I believed this intuitively. But I questioned whether I was telling myself this story to justify a selfish decision. I found comfort reading Carol’s corroborating opinion from the child’s perspective.
Generational Wealth and Estate Planning
Doug and Carol’s approach to these topics may be controversial among people who think mixing family and finance is a recipe for disaster. However, none of us is getting younger.
Age related dementia and/or Alzheimer’s disease is common. Many people will need help at some point. There is no perfect solution for this problem.
In the book, Doug shares the challenging experience of him and his brother trying to help his father who developed Alzheimer’s disease before his father shared what resources he had, how his kids could access them, and how he wanted his affairs handled.
Doug and Carol make a compelling argument for investing in your relationship with and the financial education of your kids. They may someday have to care for you. Some of the upsides of their approach include:
- Allowing the parents to have their needs met and wishes carried out,
- Reducing the burden of uncertainty on the adult children,
- Being able to gift money in a tax friendly way while you’re around to enjoy seeing the impact versus giving a lump sum inheritance after your death and,
- Planning for and limiting estate taxes.
Doug and Carol also balance the conversation. They point out that their approach places a tremendous amount of trust in the adult child to not abuse the powers they are given. They discuss measures they’ve taken to build a trusting relationship over a lifetime, communicate clearly, and safeguard all parties.
Personal Tour Guide
When I review books, I try to make the reviews balanced and share what I don’t like. No book is perfect.
However, a book’s message can be perfect when it finds the right person at the right time. This book is an example for me.
As my daughter’s eighth birthday approaches, we’ve been thinking about ways to become more intentional with teaching her about money. Doug’s situation is eerily similar to my own.
- Are one of two brothers, raised in working class families in western Pennsylvania that did relatively well with the income they had,
- Retired at age 41 by saving a high percentage of our salaries and investing the savings in simple ways,
- Had one young daughter at the time we left the workforce,
- Share similar philosophies on money, work, and life.
This book was like having a personal tour guide. He’s “been there and done that” two decades before me. It was comforting to get confirmation that this can work out well and learn specific techniques that he and his wife used when raising Carol.
Carol’s perspective added a lot for me as a dad who worries about how my decisions living an unconventional lifestyle will affect my own daughter. I particularly appreciated her discussing the many benefits, and occasional challenges, of navigating the difficult teenage years with early retiree parents.
In the later chapters, I related more to Carol’s perspective as an adult and appreciated Doug’s thoughts as I considered how to best help my parents with their finances and we prepare for a potential day when I’ll have to take control of their finances for them.
This is not a book that is based on extensive research or the gathering of multiple perspectives. It is the narrative of one couple who achieved financial independence and retired early. They then passed financial lessons down to their only daughter in a thoughtful way.
Some lessons and tactics are universal. Others may not apply as well for those in a different financial situation. Examples include those in larger families, families with less discretionary income, or people whose children are already older and who haven’t laid a solid financial or relational foundation.
Summing up, I found Raising Your Money-Savvy Family For Next Generation Financial Independence to be easy to read and insightful from start to finish. It was exactly the book I was looking for at this point in time. Depending on your situation, your mileage may vary.
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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. You can reach him at email@example.com.]
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