Oct. 18, 2010

Teaching kids to swim in the deep end - Part 1

The Blunt Truth #4 - Money doesn`t grow on trees so don`t leave it to the birds to show your kids how to manage it.

Evening Everyone,
I was meeting with a client this morning.  If you notice, I only met with one client.  That`s because my meetings last about 2 hours on average and these clients happened to live about an hour from my office so there goes the morning.

The reason it takes me 2 hours is I am thorough in my analysis of the client scenario.  I take the financial as well as the psychological elements of the client into account when I do plans.  A fundemental concept in the financial services industry is the ``know your client`` rule which states that you must understand your clients cricumstances and objectives to properly advise them.  I don`t believe this can be done in 5 minutes.

Anyway we got to talking about the diffeneces between generations.  This led a discussion in instilling in our children the value of money.  The clients were facing a problem in regards to their son`s attitude towards money.  In a nutshell, the mother felt the son was not learning the value of money and was expecting to be given all that he desired.  This was not the first time that I have had this conversation and it does not seem to be limited to well off families.  The frequency that this is occuring is unsettling.  There seems to be an entire generation of individuals that think that mom and dad will provide for them endlessly, that they are entitled to live a lifestyle equal to their parents without having worked for it, and that it is their right to have their lifestyle subsidized by the parents.  Sorry folks but this is no way to teach kids about financial responsibilty and those that are on this path may very well be in for a rude awakening.  Here are a few examples from real life:

- I met a woman who had accumulated about $20k worth of debt behind her husbands back because she was indulging the kids.  The husband found out 2 months before his retirement date and he thought he was going to retire debt free.
- I met a couple who renegociated their mortgage 3 times in 5 years.  When I asked them why they were in debt, it finally came out that the mom couldn`t say no to her daughter`s every whim.
- I met a woman in her 50`s of limited means who tried to save her son from bankruptcy.  Against my advice she gave him $10k.  He went bankrupt 3 months later.

These are just a few examples I could think of off the top of my head.  I have dozens more.  I understand the situation parents find themselves in and I am not judging their intentions, but I do question their judgement. What is this teaching these kids?  How are kids supposed to learn from their mistakes if they never are allowed to live the consequences of their actions?  It doesn`t make any sense that someone planning for retirement in 5 years be covering someone who has 45 years to build their wealth.  Kids have time, many parents don`t.  And the kids know that no matter how they behave, they have a personal connection to the executive suite at Ma&Pa Savings and Loan.

Life is tough and for good reason.  When you work hard to earn something you value it.  When you get something for nothing that is what it`s worth to you: nothing.  I have been poor in my life and I`m proud of it becuase I learned I never want to be poor again.  I learned the value of money.  It wasn`t fun and to be blunt, it sucked badly!!  I suffered and it hurt, but I survived and I learned how to bail myself out  That lesson alone was worth the price of admission.  A client of mine had a daugher that was deep in debt.  He had the money to bail her out but he refused to do so until the last possible moment.  He told me something that I`ll always remember:  ``I love my kids and I`ll never let them drown, but are they ever gonna learn how to swim in the deep end before I pull them out.`` 

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