How to Create Financially Strong Children, Step by Step

You send them to good schools, try to teach them the value of a buck and then — your grown kids just aren’t financially ready to leave the nest.

Push them out and hope for the best? That’s a tall order for even the toughest-loving mom and dad. Yet one in five college students turns into a “boomerang” kid, showing up at home after finishing school.

The problem with kids coming back to roost in their old room is that college is not a place to learn real financial habits. There’s no rent, meals are paid for, and transportation costs are minimized.

No wonder they have no idea what it costs to live. They haven’t had to do it yet!

Here are five ways to prepare your kid for the real world of money. Break it slowly to your student and, if necessary, show your boomerang child the way to independence — with love.

Start tough

While they’re in high school, avoid setting up an allowance. If they need cash for a specific outing or event, just give them a few bucks so they can join their friends. But don’t line their pockets weekly with an unearned paycheck.

Instead, encourage your budding worker to find seasonal and summer work or an after-school job if it doesn’t hamper their studies. They’ll be proud of every dollar they make on their own — and spend it far more carefully.

Save early

Once your teen has a job, get a hold of their direct deposit form. Make a deal: Send half their check to a custodial minor Roth IRA in their name and half to their checking account.

You can offer to match their savings, just as an employer would. Whatever they save over a year, say you’ll bump them up to the Roth limit, currently $6,000.

No credit cards in college

Your kid will be besieged with credit card offers once they have a college address. If you want to avoid a real heartache, go ahead (with their permission) and freeze their credit.

Safeguard the PIN needed to unfreeze it. In fact, this is a good idea even if you have toddlers at home. Scam artists now target children for identity theft. A credit freeze can foil the bad guys.

Set ground rules at home

If your student comes home jobless, welcome them with open arms but set boundaries. They’ll need to get a job of some kind within a set period. Then pay rent and utilities, just like anyone else renting a room or apartment.

A lot of parents bank those payments until the kid gets ready to fly the coop at last. Then gift it all back to make first-month rental prepayments, set up new utilities and so on. Whether you tell them you plan to do this is your call.

At all costs, avoid big-ticket spending

Alyssa needs a car. Tim needs new clothes. Vacation time is coming and all their friends are headed to Cancun! It can be very easy to start just spending down your savings to finance a lifestyle for your kids. Don’t do it.

The best kind of motivation comes from learning to make your own money and then spend it wisely. As long as the bank of mom and dad is open, there’s less reason to move out and even try to make it on your own.

Financing your kids is a given when they’re young and helpless. Once a child is working age, it’s important to shut off the money tap. It’s okay to do it steps, but once you take a step there’s no going back.

Your retirement is more important than their current spending needs. The more this reality sinks in, the more your kids will be ready to become responsible financial adults in their own right.

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