Parents have always worried about their children’s financial future. But you have to be a mom or dad of the ’90s to understand just how much there can be to worry about.
Many teenagers will reach adulthood in what forecasters say will be an unforgiving economy, marked by a brutal job market, stingy investment returns and the crushing burden of the Baby Boom’s Social Security.
Indeed, the unemployment rate for 20- to 24-year-olds already runs 10.4 percent-higher than for any other adult age group-and an alarming 43 percent of that group still live at home, according to the Population Reference Bureau, a demographics research firm.
Says Paula Luciani, head of the Fairfield, Conn., money-management firm Charter Research & Investment Group: “Today’s parents are increasingly concerned that their children will never live as well as they do.”
Though there is cause for concern, don’t despair. The American dream can still come true, but it’s up to you to teach your kids the skills and discipline they’ll need to make it come true for them. Though most teens say they want to put away funds for college, more than half save nothing at all.
Of course, your kids’ financial education should begin long before they start thinking about college, but even if they’re already in their teens, there are still steps you can take.
Teenagers
Gradually give your teen a larger allowance and a freer rein on spending. The early teens are a good time to switch from a weekly allowance to a monthly one, so your teen will learn to budget money over longer periods of time. You should also increase the allowance to allow him or her to cover most, or all, spending for clothes, fast-food meals and so on.
Susan and Richard Filloy of Eugene, Ore., went further. Last year they began giving an annual allowance of $425 to each of their two children, Amanda, 16, and Nicholas, 14.
“We were tired of trying to keep track of how much we had given the kids and when,” says Richard. “We thought they were mature enough to learn from long-range budgeting.” So far the teens, who keep accounts at a local bank, have handled their money successfully.
As much as possible, let your children spend their money as they want. Don’t fret if they occasionally blow three months’ allowance on glow-in-the-dark sneakers and the like.
Teach basic investing concepts. One great way to begin, says Nancy Dunnan, author of several finance books for teens, is to buy your child a share in a highly visible local company, such as a utility or a brand-name product manufacturer. You can then show your child how to follow the stock in the newspaper and maybe even tour the company.
Traditional after-school teen jobs, such as working a fast-food counter or retail store, can also help build responsibility. But don’t let your child work too many hours. A study by Laurence Steinberg, professor of psychology at Temple University, found that teens who worked 20 hours or more after school each week achieved grades half a letter lower, on average, than youngsters who worked fewer than 10 hours.
Discuss how your family will pay college bills. During the junior year in high school, your child should begin learning about how you plan to pay for his or her college education.
College age
Make arrangements for your child to receive cash and talk about how the finances will be handled. Set up an account at a bank near your child’s college, so you can wire money as needed. You may find it convenient to hand over a credit card as well. But before your child leaves for school, specify what the money and credit card will cover.
If your child isn’t living up to his end of the bargain, say no and mean it. John and Ronni McGlenn of Bellevue, Wash., agreed to pay their kids’ on-campus living expenses as long as they maintained a 3.0 grade point average.
When son Andrew’s average fell below the target at the University of Washington, his parents refused to pay his fraternity costs and Andrew moved back home. By contrast, his sister Katie, a zoology major, maintained a 3.0 average, and her parents continued paying her sorority bill.
“It bugged me to see how much financial support Katie got, but they were right,” says Andrew. He got his grades back up, moved back onto campus and is finishing a major in geological sciences next year.
Think twice about requiring your child to work long hours during freshman year. Kids are most likely to drop out of college in their first year, most often because of problems adjusting. It makes sense, therefore, to spare your freshman a heavy part-time work schedule. One possibility: Front-load your support in the first two years, and let your child contribute more later.
Make sure your child is thinking about career possibilities. Encourage your child to start researching careers as early as freshman and sophomore years.
A big plus is internship programs, in which colleges help students land summer jobs related to their field of study, and co-op programs, in which students alternate a year or two of study with one or two semesters of work. Such experience can be key to getting a job.
Companies that hire interns draw 17 percent of their new hires from their former student workers, and many are planning to raise that figure to 50 percent.
Boomerangs
Say you’ve shelled out $100,000 for Junior’s college education, you turned his old bedroom into a study, but now he’s back on your doorstep, jobless, with plans to stay indefinitely. If you’ve got a so-called boomerang kid under your roof, here are some tips for helping him or her achieve financial independence.
Set ground rules. “Above all, you want to avoid returning to the old parent-child pattern, where you do the laundry while the kid vegetates in his room,” says Kenneth Doyle, a financial psychologist on the faculty of the University of Minnesota.
Discuss in advance whether the child will pay rent or a share of the family’s costs. If he can’t afford to pay anything, he should at least contribute to household chores. You should also set a date-say, in six months-when you both will assess the situation.
Don’t try to land your kid a job yourself. Calling an old pal and arm-twisting him into giving your child an entry-level position won’t help in the long run. Thus you might help your child revise a resume or rehearse for an interview, but he should do his own phoning and interviewing. The goal, after all, is independence. That means your kids must be free to succeed or fail on their own.
