Personal Finance Topic #194 - Children and Money (ages 3 to early 20s) - Part 1

This is a new topic to talk about a parent, his/her children, money, and relationship that exists relating to money.  Most of the discussion here concerns how we educated our 3 children about money. 

Priority on education: This post will discuss talking about money to children from age 3 to years leading up to leaving our nest.  We did not use "allowance" because it meant "welfare".  So at first we taught them that work equals money.  At 3 years of age, that's a hard concept to grasp, so work loosely meant picking up things in kid's room to put into a toy box.  At older age, that meant fixing fence, washing our cars, building up vegetable garden, etc.  We did not pay for normal chores like washing dishes and taking out garbage - because they are to be expected. 

Save, spend, and to give: When they earned money by working, or if they were gifted money during Christmas or birthday, they needed to do one of three things: save, spend, and to give.  They could spend money freely, but when it ran out, that was it.  No bailing them out.  If they wanted to buy a car, we matched their FIRST car purchase a dollar for dollar.  They could not afford to buy a new car or even a used BMW.  A $4,000 used car would be in their price range.  But they appreciated owning their own car - free and clear - unlike many of his friends who bought cars with car loans.

Limited financial support: We financed school, books, basic clothing, school lunch, and their auto insurance premium.  If any of the following occurred, then they would have to pay 50% of the car insurance premium: get a GPA less than B, get a moving violation, or have an accident that is our kid's fault.  Second occurrence of any of these would result in no car insurance premium payment by us.  This required that they worked part-time.

I have always taught them few basic financial principles:

• Never get a credit card
• Never borrow money
• Save up to pay cash for everything (except mortgage with 20% down)
• Always have 3 to 6 months of expense in emergency fund

401Dad: If they keep these principles, while they go to school and work part time, we would match their earnings (up to $5,000) in Roth IRA investment. My daughter has $30K at age 25, and my son has $28K at age 22 in Roth IRA. 

Education fund: When each child was born, we invested $10K each into education fund, which grew to fund their college expenses almost tax free, so funding college was no problem, since they all chose to attend state schools.  We hope that they will continue to use our financial principles for rest of their lives, and stay debt-free, while building wealth.  They do not come asking us for money help.

Next post will be about kids who've left the nest.