Teaching adult children the facts of life - Finances - tips from the Financial Planning Association

USA Today (Society for the Advancement of Education), August, 2003

Your children are grown, but they still may be kids when it comes to managing their money. Perhaps they have returned home to live with you because they can't afford to be on their own, or they're living on their own but are struggling financially because of poor money-management skills. So how do you teach offspring the financial facts of life now that they're all grown up? Here are a few tips courtesy of the Financial Planning Association from financial planners, psychologists, and other experts.

Talk about it. One reason kids often fail to learn what they need to know about finances when growing up is that money is a taboo topic in America. Moreover, when parents do talk about money with their offspring, it's often a one-time lecture on the financial birds and bees just before they graduate from high school. Consequently, the children fail to see the important "behind the scenes" finances of the household.

To make up for missed opportunities, listen to their concerns and problems, and tell them about how you personally dealt with similar financial challenges. Talk about your mistakes and your tough financial times, perhaps when you were starting out, just as they are, and had only entry-level jobs that barely covered rent and food, and couldn't buy "luxuries" like a television or new clothes. Sure, they'll roll their eyes, but they're listening.

Show financial tough love. Sometimes, say experts, you just have to cut the financial umbilical cord. Perhaps they're living at home "temporarily," or you're giving them some financial support while they're going through a rough stretch due to a job loss or divorce. There is nothing wrong with that. However, if they're abusing this financial support--say they've been living at home for years!--it may be time to say enough. Yet, don't necessarily do it cold turkey. Make a plan for weaning them off your support; tell them the plan; and stick to it.

Bring in a professional advisor. A professional financial advisor can help in one of two ways. First, the planner may work directly with your child as a client to help organize and improve his or her financial situation, and most important, teach him or her some financial basics such as budgeting and investing. Your child may be more open to listening to an outside professional than to you. If he or she can't afford to pay for the planner, perhaps you can help them out. Or, your might have your own planner work with you and your child.

Use trusts to teach. The children of more comfortable or wealthier families are just as vulnerable to financial insecurities and illiteracy--sometimes more so because they never had to learn the financial facts of life growing up. Some families establish trusts for their children in part to teach them financial wisdom. For example, initially have the child meet periodically with the trustee (which may be you) and the trust's advisor, if you have one, to learn how the trust is being managed and why certain assets are invested in specific ways. Because it is the child's money that's being managed, he or she should be more willing to listen. Later, you can have the adult child assume co-trustee duties so he or she can help make actual decisions. Eventually, the child can graduate to becoming sole trustee.

Incentive trusts, designed to promote certain beneficiary behavior by attaching strings to the trust distributions, is another way to instill financial lessons or behavior. For instance, some family trusts say a child can receive financial distributions only if he or she earns a certain amount of money on his or her own.

The same thing is possible with a business--require children to work on their own for other employers before allowing them to work for you and perhaps eventually inherit the family business.

Teach them through charity. Wealthier families often involve their offspring in their charitable projects, such as a private or community foundation. This can teach money values and management skills.