Daddy Financials

(This is a guest article by Melanie Taylor*)

Faced with a declining economy and slumping property values, it’s easy to think ‘Why me?’ – or, more accurately, ‘Why us?’.

When the pay-off for years of working hard and paying the mortgage seems threatened by economic conditions beyond our control, many of us wonder what it is about the US that’s invited all that economic turbulence.

It’s a question that’s prompted endless blogs, discussions and learned articles, many of them dissenting or even contradictory. We don’t have the space to go into it here, but suffice it to say:

1. The US is not alone in its woes.


2. We can help our kids avoid some of the problems we’re seeing today.

Across the Pond

Cross ‘the Pond’ and you’ll find another country with similar – perhaps surprisingly similar – problems. Already one quarter (of negative growth) into a probable recession, the UK is facing its own crisis, largely due to problems in the housing market. Like the States, it’s dealing with distinctly different generations of homeowners and would-be homeowners:

• Would-be first-time buyers unable to get a mortgage.


• Baby boomers worrying about their kids’ mortgages/property as well as their own.


• Grandparents and great grandparents carrying mortgage debt with them well into their retirement years.

Homeowners aren’t the only ones affected, of course, but the problems in the US / UK housing markets are a poignant example of how macro-financial problems affect normal people – people who’d assumed:

• They’d be able to get a mortgage.


• Their property would appreciate in value.


• They’d be able to turn some of that value into cash when they wanted.


• They’d be able to sell it (for a substantial profit) when they wanted.

Should I care?

On the one hand, no. The US, many think, has enough problems of its own.

On the other hand, yes. Deciphering trends in another country often helps us understand our own problems. With the right attitude, it can even help us solve them, whether we’re following another’s lead or learning from their mistakes.

A news release from pensions and investment provider Scottish Widows revealed a few startling facts. For example:

‘Adult children are ‘sapping’ their parents’ savings and investments at an increasing rate of knots, as Scottish Widows reveals the position has got even worse over the past year. Over half (55%) of parents have given or loaned their children or grandchildren thousands of pounds compared to a figure of 39% last year – an increase of 16%. The second annual report from Scottish Widows reveals the average amount given by parents to their offspring is £12,610 making a total ‘Savings Sap’ of £67 billion.’

The figures might relate to another country, but the news itself will sound disturbingly familiar to (grand)parents throughout the USA. The question is: how can we avoid this kind of situation in the years ahead, protecting our children’s finances and our own?

What can I do?

In terms of the wider economy, there’s little any of us can do. Our children – and their children, no doubt – will grow up in an economic environment very different to the one we know.

However, there’s plenty we can do to give our children greater financial independence. After all, it’s every parent’s goal to bring up a child who can make their own way in the world. Being tied to the financial ‘apron strings’ might hurt Mom and Dad, but it’ll hurt Junior a lot more.

A few ideas to help your kids develop the respect for money they’ll need when they fly the nest...

• When your child asks you to buy something for them, tell them you’ll think about it. If you decide to buy it, calculate how much they should put towards it, whether it’s contributing a percentage of the price, mowing the lawn from now until X, giving up half their allowance for the next X months...


• If they break / lose something because they’ve not taken care of it, simply refuse to replace it.


• Get out the calculator and show them what price tags really mean. For example: “You can have either
  
  • the $100 sneakers, or
  
  
  • the $20 sneakers AND a trip to the cinema AND a new CD AND five ice creams AND $15 to spend on toys.”


• Tie all / some of their allowance to household chores.


• If they’re saving, offer to match whatever they put in.

These are just a few ideas – and only you can judge what’s fair, and what’s too harsh / too lenient.

What works?

No-one can answer this but you. You know your child better than anyone, and you know how they respond to differing stimuli. It’s almost impossible to track the effects of any one decision you make about your child’s upbringing, but you could try this:

• Think about the people you’ve known for years – the ones whose life-stories you’re reasonably familiar with.


• Look at the way they manage their money.


• Reflect on what you know about their upbringing – in particular, the way their parents approached things like allowances, responsibility, etc.

There’s a fine line between displaying generosity and encouraging dependence, and it’s up to each parent to decide when and where to say ‘no’ – but if you can learn from other people’s mistakes, it makes sense to do so.

*About the author: Written by Melanie Taylor, of Think Money, who offer debt, loan & mortgage solutions.

*Image Credit: Photograph by Extra Medium [via Flickr Creative Commons]