Some children inherit money or get it from an injury or other legal settlement. (In some cases, they have fatter wallets than their parents.) Many state guardianship laws let children take control of their money when they celebrate their 18th birthday, which can be a recipe for disaster.
With large amounts of money, there are very few adolescents at the age of 18 who know how to deal with this cash. Whether a child gets a windfall of money from an inheritance, settlement or other source, it may be spent haphazardly unless he is restricted from getting all of the money as soon as he turns 18.
Financial planning, such as structured settlements and trusts, can save the adolescent and parents a lot of heartache over money that might otherwise have been squandered. Many kids in a position of having a lump sum of money will spend it on their friends, becoming the toast of the town until the well runs dry. A financial planner once urged the parents of a child to defer their child’s money over several years. They didn’t listen to the advice and put $100,000 in the child’s bank account upon his 18th birthday. Unfortunately, the kid developed a cocaine habit, spending every red cent he had.
A Financial Profile is Set at 27
A person’s financial profile is set at about the age of 27. It is a good bet that if somebody is a spender prior to age 27, he still has time to change the behavior. But, spenders after that age will, most likely, stay that way for the remainder of their lives.
The reason the age is set at 27 is because many people are beginning their careers and starting families at that point. In addition, the decisions a person makes at 27 years old will be more mature than the ones they made at the age of 18.
To help children learn how to spend and invest their money wisely, parents and guardians should make sure to keep it until the kid is older and more mature to make sound decisions and manage it.
Parents Spending Too Much on Their Children
Does your child have too much money and material items? Check out the questions below, and if you answer yes to more than two of them you are most likely spending too much on your children.
Does My Kid Have too Much Money?
- Do you wait for holidays and birthdays to give your children something special, or do you buy the item right away?
- Do you buy your children what they want without asking them to chip in from their allowance if they are older than seven?
- Are your children’s cell phone bills high, and you still pay them?
- When friends give their children expensive birthday parties, do you feel like you have to do the same?
- Can you still see the floor of your children’s bedrooms? Or, are there so many toys, clothes and devices that you would not know there were floors?
- Do you give your children carte blanche of your credit card when they go shopping?
- Do you spend more money on your children than you do on yourself?
Here’s one way to figure out if you are spending too much—or if your kid has too much money? If you are in your 30s, you should put at least 10 percent of your income into a retirement plan. When you are in your 40s and 50s, the savings should be 15 percent of income. If you are not doing this—or not even near those numbers—you might be spending too much money on things for the children.
Put Some Financial Responsibility on the Kids
Janet Bodnar, author of Money Smart Women, said that starting at six or so, kids should have allowances to pay for certain expenses. For example, eight-year-olds can pay for their own trading cards, snacks or hair clips. By the age of 12, they can pay for DVD rentals and iTunes purchases. (A good lesson, according to Bodnar, is to have the kids check the Web and store ads for the lowest prices and use any coupons, if possible. In addition, they should show you their research.) By 16, kids should have a fixed clothing allowance. If they want those jeans for $100 a pop, they will find out they can only buy them if they cut something else out of their wardrobe. When the kids are old enough to get jobs, they should assist in paying cell phone bills and gas for their trips.
- Don’t worry about what kinds of birthday parties your friends give their children. If you overspend on a birthday, it won’t ensure a great time anyway. Let kids do what they like best, such as swim in the pool or run around the back yard with water guns.
- If you pay for the most expensive cable channels, is it for your children or you? Cut down on the cost and limit the channels available to the kids.
- Kids and cell phones go together like peanut butter and jelly these days. Children want to text message friends and download their favorite music. Instead of watching the cost of cell phones creep higher and higher, go for the prepaid service and limited minutes. Or, pay for the basic service, and they will have to shell out their own cash for overage charges and other extras.
- If a teenager is old enough to work, he should get a jump start on the responsibility of a job. When he works hard and collects his first pay check, it will open the doors to independence. He will be able to buy some of the things he wants, grab something to eat with his friends and go to the places he wants to without whining to you about not having any money. Plus, it would be a great way to show him how to budget his earnings, allocating some of it for fun and some as savings for a special item. It is not necessary to enroll teens who can work in art, dance, acting and other specialty programs just to keep them busy during the summer. They can spend that time by getting a job, which will teach them the basics of a solid work ethic.
