The Generation Gap: Passing Sound Financial Practices
Down The Family Tree
Author: Joseph Kenny

In our world of "keeping up with the joneses", it's an everyday
struggle to resist buying the latest, greatest toy to wow our
neighbors with. But how did we come to be this way?

If you're a Baby Boomer, your parents probably weren't like
this. They were too busy trying to feed, clothe, and provide
shelter for their families; everything else was gravy. But in
today's world of borrowing, credit and instant gratification,
seemingly anything we want, we can have. We pay for it for
years, and thanks to interest rates, we end up paying a lot more
than actual sticker price. But hey, we have it now, right? Thing
is, if we step back and think about it, we can learn a lot about
finances from our parents. We can also pass that info on—and
then some—to our kids, creating a lineage equipped with sound,
smart financial knowledge.

Teach them about today's money

Spending isn't like it used to be. Through the prevalence of
checks, credit cards and debit cards, cash is a rarity in
today's world. But it's important that our kids understand where
money comes from and how it's used. When you plop down the
plastic for a purchase, let your kids know that the money is
either coming directly from your bank account, or a bill will
arrive in the mail which you will soon have to pay. When at the
ATM, tell them that cash isn't magically coming out of the box.
It was put there from your work, and its money you earned. As
they grow older, instill more sophisticated lessons into their
lives. Tell them about late fees, interest and the importance of
saving. The early you start teaching your kids about finances,
the better off they'll be.

College quality counts

Studies show that four-year undergraduate degrees are now the
norm in the working world, and in order to stand out, a graduate
degree is necessary. On average, the income of someone with a
master's degree was nearly $10,000 greater than that of a person
with a bachelor's degree. Also, the higher rated the college
your child attends, the more they will make. Start saving now
for your child's education, and be prepared to shell out extra
over the long run if need be. It's proven that the amount they
will make after college will easily outpace the extra cost
incurred by attending a big-name school.

Save, Save, Save

Don't spend, spend, spend. Advertising today would have you
believe that everything on the market is an absolute must have
for you and your family. Credit card companies are approving
younger and younger kids every day. Resist the urge to splurge.
Make saving a priority in your family, and introduce kids to the
concept as early as you can. If your child requests a big ticket
item, put them on an allowance and encourage them to save for
it. Tell them that if they save an agreed-upon amount within a
certain time frame, you'll match it (a nice little introduction
to the world of the 401(k)).

Help them as adults

Studies show that most grown, independent children ages 25 to
34 receive over $14,000 from their parents. No, these aren't
slacker kids still living at home. These are independent,
educated adults who earn a decent income, but who might need a
little help getting started in the world. Giving now can help
your kids save on estate tax when you're gone, and will also
have more of an immediate impact for them and more satisfaction
for you. The IRS will allow a gift of up to $11,000 per year for
each child without incurring a gift tax, and couples are allowed
$22,000. When you do give a sizeable gift to an adult child,
make sure you set the ground rules on it before the money
exchanges hands. Let them know that the money is to be
specifically used for something like a down payment on a home,
not for a new sports car. You want your cash gift to help your
child become independent, not condition them to expect parental
gifts for frivolous purchases.

Most importantly, be a role model to your children when it
comes to finances. Just like everything else, you can preach
until you're blue in the face, but if they notice you making
unsound financial decisions, the more likely they are to do the
same.


About The Author: Joe Kenny writes for the UK personal finance
sites http://www.ukpersonalloanstore.co.uk and also
http://www.cardguide.co.uk