Many of the greatest gifts you can leave to your children are obvious: education, wealth, the family home, a happy childhood, and so on. But have you thought about what you should try not to saddle them with?
Of course, your kids might be better off without your dilapidated summer cabin or your collection of preserved turtles. But it would be far worse to leave your kids burdened with financial ignorance.
After all, kids who are good money-managers can make their own way in the world, succeeding financially, while others, who may have received a financial windfall, can burn their way through a lot of cash in short order and end up in even worse financial shape than they were in before.
Bad habits, bad decisions
We're not always aware of it, but no matter what we're doing (or not doing), kids are often watching and learning. So if your children see lots of bills piling up on the coffee table and rarely being paid, they can get the impression that paying one's debts is not important. If you view shopping as entertainment, or as "retail therapy," they may grow up seeing it the same way.
Words and actions
So how should you go about making sure you don't leave your kids with a terrible inheritance in the form of financial ignorance and bad money habits? The best solution is to teach them regularly about money through discussions and also through your actions.
Let your kids see you paying bills regularly. Show them credit card statements, as that can be a great way to show that a month of paying $36 for this and $17 for that can add up to more than $1,000 each month. Discuss credit issues with them, ideally explaining how you pay off your bills in full each month.
If you're deep in credit card debt, even that can produce good results. Explain the situation and what you plan to do about it. Let them see you making sacrifices and paying down your debt. They can learn by watching you keep your car for more than a decade instead of routinely getting new cars, and they can watch you shop around for the best price for all kinds of things -- a new fridge, a new car, sneakers, a smartphone, a TV. Using coupons online and in stores can also show kids how money can be saved. When holidays roll around, you can discuss how much is a reasonable sum to spend on gifts.
Above all, don't be afraid to tell your kids, "We can't afford that."
Manage money together
Get your kids involved in managing money themselves, too. You might give them an allowance and let them manage it. One good idea is to have them divide their income in thirds, saving a third in a bank or investment account, spending a third on whatever their hearts desire, and giving a third to charity. You might even research charities together to find ones that support causes you believe in and are also effective with their money. Sites like CharityNavigator.org let you look up or browse through charities and see their scores on various counts. Kids will appreciate that the Mercy Corps' overall score of 94 is like getting an "A," while The American Red Cross' 81 is more like a "B-."
As you talk to your kids about your financial goals and habits, you can explain how you're planning for the future by saving and investing for retirement and college expenses. Discuss how money can grow -- in bank accounts, in stocks, and through dividends and interest -- and then let them participate. Open savings accounts for them when they're young and then perhaps debit card accounts when they're older.
You can even open a custodial joint brokerage account so that your kids can start investing in companies and can learn how the stock market can enrich them. Choose companies that they would enjoy keeping up with -- perhaps Nike, Starbucks, Chipotle Mexican Grill, Netflix, Disney, or Hasbro. Call the companies' investor relations departments and request an "investor packet," with the latest annual report and other goodies, and then review them together.
Raising your kids to be savvy about money -- to know how productive it can be and how costly bad decisions can be -- is one of the best things you can do for them. You can teach them how to achieve financial independence. And what better inheritance is there?