Next Generation Financial Independence

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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.

Raising Your Money-Savvy Family for Next Generation Financial Independence book cover

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?

Different Perspectives

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.

Reinforcing Beliefs

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.

Expanding Ideas

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.

  1. How does retiring early impact children who don’t see their parents going to work?
  2. 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.

We both:

  • 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.

My Critique 

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 chris@caniretireyet.com.]

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16 Comments

  1. My parents taught me nothing about investing (savings bonds were as complex as they got), but a healthy dislike of debt and a reasonable frugality has stayed with me all my life.
    My financial lesson/gift to my kids: no fancy weddings would be paid for, but each graduated with zero student debt, even through graduate school.

    1. Mary,

      Our backgrounds sound very similar. No parents get it 100% right, but the “healthy dislike of debt and reasonable frugality” we both have are a solid foundation to build on. We hope to pass those lessons on to our daughter as well, with the hopes of giving her an understanding of the power of compounding and an interest in understanding investing.

      Best,
      Chris

  2. Looking forward to reading this book – wish it’d been around about 10 years ago! Our two boys are now older (late teens), but we’ve wrestled with many of the same considerations (allowances, how much parental guidance to provide over bank account management, whether/when to get credit cards for them) over the past 5-10 years. Really look forward to hearing the daughter’s perspective, as our kids don’t seem to want to do a lot of discussion of the topic.

    1. GAH,

      I don’t think many kids “want to do a lot of discussion of the topic.” This is especially true if you’re at all like I noted we are and tend to want to control everything. This turns “discussions” into “lectures.”

      What I liked about the approach described in this book is that from an early age, the parents placed an emphasis on putting money in the child’s hands and giving her options, but then getting out of the way and allowing her to make mistakes and deal with the consequences.

      Hopefully, you’ll find some valuable ideas in the book as I did.

      Best,
      Chris

  3. I wish my parents had been a bit more hands on with financial education. They set a good example by earning, saving and being sensible with money and my father would often tell me what he was doing financially and why and give me advice but it was never systematic. With the benefit of hindsight I wish he had sat me down and been more direct and emphatic and it would have saved me quite a few missed opportunities. Fortunately I am frugal and a saver by nature so am OK. At the end of the day my belief is that people’s attitude to money and behaviour with it and around it are deeply embedded in their personality and emotional make up. I don’t think it is easy at all to change that.

    1. Tim,

      You’re experience sounds similar to mine, and probably that of most people who have a relatively healthy relationship with money. Unfortunately, many people are taught nothing and witness negative behaviors on a daily basis.

      I believe most parents are doing the best that they can with the information and abilities they have available. Many people are just financially illiterate, and those that aren’t have mostly figured things out on their own.

      Books like this are needed to improve parenting skills and lessons taught in our homes. This one was really perfect for me, but we need many more perspectives and ideas out there.

      Best,
      Chris

  4. Fortunately I had parents that took care of their own affairs and educated my brother and myself on how to access the accounts if needed. They also modeled good financial behavior, buying cars and all consumer items other than their house with cash and never letting a credit card balance not be fully paid each month. And they talked about it at the dinner table. As we became adults my dad shared his portfolio spreadsheet with us. Who knew my middle class parents were millionaires, but they were! But one key thing they did was to insure we found employment outside the home as early as possible. Nothing teaches a kid about money like earning and spending their own. We also repeated that with our kids and they are all pretty frugal and good with their money as well. We also bought cars with cash, paid off credit cards in full each month and became millionaires ourselves. Money was never taboo in either of our homes. When we did finally share our net worth with our kids they were similarly blown away by their multimillionaire parents. Because we lived basically frugal middle class lives while they were growing up. They couldn’t quite absorb that we didn’t have a desire to buy expensive things just because we had a ton of money. But they get it now.

    1. STEVEARK,

      Our experiences sound pretty familiar, except my first job, while out of the home, was in my dad’s photography business. Working (and clashing) with him as a teenager motivated me to want to get out and get a job on my own. Or maybe that was their master plan all along.

      Cheers!
      Chris

  5. When my daughter was a teen (she is now 42), I was tired of being constantly asked by her whether I would buy her a new clothing item whenever we went shopping. To stop the questions and try to teach her some money management skills, I gave her a prepaid credit card with a fixed amount each year for her to purchase her own clothes for the entire year. I based the annual amount on previous year actual expenses plus some to cover inflation and a little extra. She would have to make a budget deciding how much to spend on jeans, T-shirts, underwear, dresses, shoes, etc. She strongly objected at first and accused me of being mean but she eventually figured it out and realized she had much more freedom and control than ever before.

    1. F. Marker,

      This is very similar to the approach described in the book and one we’ll probably use as well. I love how it gives the teen power to figure out how to be resourceful and either use the money they have wisely or earn more (or preferably both).

      Best,
      Chris

  6. Chris-

    Perhaps I missed it. Are you compensated in any way for these reviews? This always helps to determine objectivity (like dealing with a financial adviser).

    Thanks,

    Chris

    1. Fair question. I am not compensated in any way by an author or publisher when agreeing to review a book. You may notice that while I try to include a critique of books I review, I never write an outright negative review. That’s b/c if I think a book is poorly written or not useful, it just isn’t worth my time to finish reading it and writing the review. If I feel a book is worth reviewing and recommending, I include links in the text that take you to Amazon. We receive a small commission on those sales as disclosed at the bottom of the post.

      Best,
      Chris

  7. Given teenagers generally don’t want to hear more lectures from their parents, I try teaching my kid during point-of-purchase and point of earnings activities. I also keep my “lessons” short. For example, Just yesterday, my kid went to the mall with friends and he picked up a pair of shorts. On the way home after picking him up, I asked him about his purchase and he replied that the regularly priced $49.99 shorts were on sale for $29.99 but still felt expensive for what it was. He then said he thinks buying gently used items on ebay like he’s done before was a better value. I replied telling him that he will continue to get an “informal budget” for clothes and he gets to make the call on what to buy, whether it be “designer brand used clothes” bought online, new clothes that he needs to wear more often because he can’t buy as many at regular price or keep looking for sales before he buys. Whatever mix makes him the happiest is solely based on his decision. And any mistakes are all on him.

    Hopefully, over time, these cumulative experiences will give him a good sense of personal finance decision making.

    1. Phillip,

      Agree that most kids learn best by doing, making mistakes, and improving going forward. Obviously, they can learn from our insights and some guidance is necessary, but we’ll take a similar approach of allowing our daughter to make decisions and live with the consequences of them.

      Best,
      Chris

  8. Chris! Hope you’re well. This topic is one that I’ve been thinking a lot about lately. That book sounds like it provides a great overview, and as well as serves as a guide throughout the many phases of learning about personal finances (from youth to adulthood). We could learn a lot here!

    Another good resource is Tiffany Aliche, aka “the Budgetnista”. She has written a book or two as well. I purchased one of her books for my 8-year old, which is geared toward elementary schoolers. You familiar with her? She can be found at https://thebudgetnista.com

    1. Hey Dave. Great to hear from you!

      Are you spying on me? I just listened to this interview with Tiffany yesterday. https://www.choosefi.com/from-financial-imperfection-to-americas-favorite-budget-expert-tiffany-aliche-ep-240/ I’ll have to check out her kid’s books.

      Hope you and your family are well also. Being in the financial position we are makes dealing with current circumstances in our world much more tolerable, but we’re still not finding anything very easy as we adapt to this new “normal.”

      Cheers!
      Chris

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