Recs

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Recession Lessons for Your Kids

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Success stories are regular features of the Motley Fool's Rule Your Retirement newsletter service, where we share profiles of people who have become financially independent. One of the most remarkable stories we've come across is that of Billy and Akaisha Kaderli. At age 38, they left their fast-track lives and started traveling the world. Here Akaisha and Billy encourage you to take advantage of the lessons that financial recessions offer.

Take it as a gift.

Recessions give us opportunities to reorganize ourselves in ways that are more productive and responsible. One of those areas could be a correction in our financial values -- and those that we are imparting to our children.

The days of being blissfully unaware of what something costs may be behind us, but that's not necessarily a bad thing. If you are a time-crunched parent who fell into the trap of granting your children their every wish, you may find it's harder to do when you're anxious about the economy, your job, and your own ability to retire from the working world.

If financial reflection has revealed habits you would like to change about how you spend money on your kids, you are not alone. Helping your children to develop important money skills like budgeting and saving is a goal worth pursuing and a win-win situation for the whole family.

Since parents play the greatest role in teaching young people about money, tightening the family's belt could be a gift in disguise.

Financial philosophy
If you can no longer keep up the financial pace you have set, it's time to look at your spending philosophy. Do you know what drives your financial decisions?

There is no shame in paring down superfluous spending, and financial prudence brings an awareness to your life that can't be purchased. What better tool could you provide your children than training them to become an intelligent consumer and investor? Do your children know the difference between a want and a need?

Team Family
Even if you think your kids pay no attention to you at all, parents are a powerful force in shaping their children's approach to spending. In fact, you are your kids' best hope. Even if they push back at you, they often do so to find out where you stand.

If you cave in to pressure to buy instead of working from your personal value system, then your children won't get the right message. Communicate with your spouse to get your financial priorities straight. Make sure you are both in agreement so that your children won't play one of you off the other's weakness. Showing unity in beliefs and goals is crucial; it's teamwork in action.

Having "the talk"
When should you start taking to your children about money? There is no better time than now. You will be more convincing if you speak from your own solid example, rather than from a reactive position when emotions run high. Look for teachable moments with your children and take advantage of them.

The following examples could help you along:

  • On the occasions when you decide to eat at home instead of going out, physically show your children the money you save by making this decision, and what it could be worth in the future if invested. If you are working toward a family goal, put that money toward the amount saved so your kids see the goal becoming real and reachable.
  • If your kids want a new $60 skateboard and a new pair of sneakers and you can only afford one or the other, let them decide which item is more important. Do not back down from your financial priorities by purchasing both items just to keep the peace. And if you're not going to buy the item, explain why. Encourage your children to save for it themselves, and consider offering to match some of their savings.
  • If impulse buying was the old norm for your children, suggest waiting a day or two to think about it instead. Help them locate the item on sale or find a similar item without the brand logo. Show your kids the savings between the two prices to illustrate the point.

Teaching responsibility for financial decisions is crucial to building strong adults. You are not doing your children a favor by supporting a reality that they will not be able to sustain when they reach adulthood.

Involve your child
If your kids have received most of what they've asked for, they won't understand the link between effort and reward. To get that lesson across, let them manage their own money. You may find that where your children happily spent your money, they are misers with their own cash.

Try these tips:

  • Begin with stating clearly which expenses you'll pay for, and to what extent. Decide how much you will pay per month for clothes and how much you will match their savings toward larger purchases. For younger children, perhaps giving an allowance plus offering payment for tasks above and beyond their usual chores will work. Then have them be responsible for a small expense. For teens, encourage them to get part-time work.
  • If your children want something, let them save for it and chart their progress. If it's a large goal like a musical instrument or a car, speak to them about insurance upkeep and the pros and cons between used cars and new ones. Discuss the possibility that you could help out with the remaining third of the price if they save for the other two-thirds. For longer-term goals of two years or more, you could match them dollar-for-dollar.
  • Allow your kids to be accountable for purchases. If that scooter, bike, or digital toy bought on impulse turns out to be a mistake, it's not your job to be a financial rescuer. Allow your children to complete the process of purchase on impulse, grief, or disappointment, and then help redirect their financial focus more productively. Selling that unwanted item on an online auction or Craigslist can help recoup some of that lost money. Let it be a teachable moment.

Involve your extended family
To insure that this new financial outlook has staying power, enlist aunts, uncles, and grandparents to participate. When everyone knows what the goals are, it's easier to be on board. Discussions about money coming from adult family members can be a powerful tool, and most young people would prefer our time with them over material gifts.

For birthdays and holidays, why not have grandparents contribute to a college fund? Or aunts and uncles could write a "sharing check" to your kids, with a portion of the amount to be shared with a charity of your kids' choosing. This action requires your children to think about the value of gifts, and the reasons for donating a portion to an important cause.

When your kids purchase pet food for a local animal shelter and then go with you to the shelter with the donation in hand, this experience makes for a solid memory. It also gives you time with your kids and lays the foundation for giving and sharing to be part of their lifestyle.

The current financial climate can help you bring a consistency to your heart and to your wallet. There are countless opportunities to get back on track, and we think you'll find the rewards to be more than monetary.

For more Foolishness:

Fool contributors Billy and Akaisha Kaderli write regularly for the Fool's Rule Your Retirement newsletter. They retired in 1991 from the brokerage and restaurant businesses to a life of international travel. Visit their website at RetireEarlyLifestyle.com and check out their new CD book, The Adventurer's Guide to Early Retirement. The Fool has a disclosure policy.


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