Tuesday, October 21, 2008

Teach Your Children Well

A number of colleagues have commented over the past several weeks about the ways in which raising children has suddenly changed. A headline on the New York Times website several weekends ago captured the issue in a nutshell: Cutting back on expenses, parents say “no” and children say, "Huh?”. Perhaps even most startling, especially among families who thought they were immune to economic shifts, were reports that the Sumner Redstone family, large owners of two very large and historically successful businesses, had to sell 20% of their holdings in the midst of last week’s market slide to meet debt covenants.

The current state of the economy has created a wonderful opportunity – and a need – to address with our children the realities of economic limits. For many of them, that has been little but a vague abstraction until now.

For most of our children’s lifetimes, our culture has been filled with pictures of celebrity and great wealth. Even for those who are a little more intellectually or financially inclined, lessons have often focused on the value of debt and its importance in building wealth.

The lessons suddenly being taught to all of us by the current economic situation are decidedly more punitive.

Unfortunately, the harsh realities of the moment are likely lead more to resentment than to learning unless we take proactive steps to help our children develop a better understanding of practical economics.

Talk about budgets. Whether they are going to run a business in the future, or simply manage their lives on some finite amount of income, your children will at some point to have to understand one important issue: To sustain any given set of expenditures, income from some source is going to have to equal or exceed them.

Give them a fixed allowance to manage. If your resources have been reduced in this environment, you may have to – or decide you want to – reduce your children’s income proportionately. They probably won’t like it; but they will learn more if you take the time to explain to them why you are making the changes, and help them think through their own new budgets.

Find a few items in your budget that will have particular meaning to your children, and discuss them: Which of your costs (like housing) are fixed? Which (like vacations) can be adjusted as circumstances change? What does their schooling cost? How much income does the family have to have to pay for big items like tuition with after-tax dollars?

Do not ignore debt – its uses, its costs, and the fact that it almost always carries real (contractual) conditions. Where do loans come from? Why do some loans cost more than other loans? What kind of rules come with the money when it is loaned to the borrower? Why do almost all vendors charge interest if bills are not paid within a certain amount of time?

It’s hard. Much of your energy is probably going to figuring out how to adjust to all of the changes and impending changes in the world. You probably want to try to protect your children from them. You can’t. But you can involve them and help them learn what they need to know to be wiser stewards of all that you have tried to create for them.

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