Like many of you, I have kids. Two kids, to be exact. I think about my kids all the time. I’m worried they are going to hurt themselves when trying something new. I’m concerned that they aren’t eating enough, or aren’t eating the right foods, or maybe even that they are eating too much food. I worry about their physical and mental development. Are they being stimulated enough? Are they getting enough sleep?
When I’m traveling for work I worry that my absence is going to affect them. Will they think I’m gone because I don’t love them? What if I miss some major developmental milestone, like a first word or first step? Will they look back on their childhood and remember me always being gone?
But more than anything, I think about the legacy I’ll pass on and how to best prepare my kids for success in their lives.
I think just about all parents want their kids’ lives to be better than the parents’ lives. It’s the reason people leave their homeland to emigrate to a new country. It’s the reason parents work 2 jobs or spend all day shuttling kids from activity to activity. It’s the reason we make so many sacrifices.
But what are the gifts that we can give our kids that will actually set them up for a better life?
Study after study have shown that more education results in higher lifetime earning. Each step up on the ladder of educational attainment results in higher average earnings. Yes, there are people with high school degrees making more than some doctors, but the averages are quite clear – more education equals more money. For example, those with a college degree make 66-74% more over their lifetime than those with just a high school education.
It’s logical then that setting our children up for a better life would mean investing in education. But what sort of education? Does this necessarily mean the “best” (i.e. most selective) school possible? And should we guide our kids towards a certain major?
This is a tricky subject with a lot of disagreement. I was lucky, in that the topic I was most interested in (Computer Science) also happened to be among the most in-demand from employers and therefore the highest paid. I studied what I loved and ended up with a lucrative career. But what if your kid wants to study art history?
I’m of the opinion that college is just too expensive to not factor post-graduation earning potential into picking a major. Yes, there’s something to be said for doing what you love and living your dream, but there’s also a lot to be said about having enough money to buy food. Being a starving artist sounds a lot more romantic than it actually is.
If your kid wants to study English or Art History or Music or another subject with limited earning potential – great! But in that case it probably makes sense for them to also major in something like biology or math or economics or business or computer science. The reality is that if you truly love theater you can take classes after graduation and join community theater groups. That’s easy to do once you have a good paying job. It’s a lot less likely that somebody would study Electrical Engineering on the side while making a living as an artist.
Help your kids get an education, but always have an eye towards practicality and real life. After all, if they do things right they’ll only need to work for 20 years or so anyway, after which they can become non-starving artists since they’ll be financially independent, right?
Morals and ethics
This is one of the most valuable things to pass on to your kids, yet it costs nothing. I think we all want to raise “good” kids, where “good” is defined as kids that are honest, trustworthy, hard-working, empathetic towards others, helpful, and a good member of society. Kids primarily learn these things from their parents, and they learn them not from what you say, but from what you do.
I have a boss (who I love, BTW) who is almost certainly financially independent. He makes more money than I do, lives somewhere with a lower cost of living, is 10+ years older than I am (so he’s had more time to save and invest), and lives a very inexpensive lifestyle. A while back we were chatting about life, work, and investments and I asked him why he was still working. He said he was working because he wanted to set a good example for his kids. He wanted them to see him get up, go to the office, and work hard. He wanted them to make the connection between hard work and the lifestyle he was able to provide the kids.
I had mixed thoughts about that message. On one hand you have a guy who is practices what he preaches. He could have been spending his days in leisure, pursing hobbies and enjoying the fruits of his labor, but he wanted to keep working to drive home a lesson to his kids. I think the misguided part is that by continuing to work he’s not showing his kids WHY they should save and invest. If you’re going to work your whole life, save aggressively, and invest wisely, but never spend the money and not retire early, I wonder what the point is, and I can imagine kids having the same thought. I don’t see the purpose of making lots of money just for the sake of making money.
As for the other lessons, I think it’s key to not make a child’s life too easy. Kids need to be exposed to failure, bullies, bad things happening to good people, and good things happening to bad people. In short, they can’t live in an idealized world where there’s no sadness or fear. They can’t only participate in activities that they are good at. I want my kids to fail so they can learn to succeed. I want them to face rejection so they push through it. I want them to learn that the world is a tough place but there’s joy in overcoming adversity and pride in accomplishment and happiness in figuring things out yourself.
None of these lessons cost money.
YOUR financial security
Like everybody else in the world, I worry about my parents. I worry about their health, their social lives, and whether or not they are happy. I worry about when I’m going to get to see them next, how we’ll deal with their inevitable health problems, where they’ll live and who will take care of them when they can’t take care of themselves. However, there’s one thing I don’t have to worry about with my parents – money.
Both of my parents spent almost their entire careers in education, which is one of the few remaining jobs with a pension. As a result of many years of work they both have a healthy guaranteed income for the rest of the their lives. Combined with Social Security, it is enough to ensure they’ll live comfortable lives.
Not having to worry about my parents’ finances has been a fantastic gift. Will I be able to leave the same gift to my children?
Everybody is responsible for ensuring that they aren’t a financial burden on their loved ones. This means conservative management of your finances. It means avoiding debt. It means creating an emergency fund so an unexpected expense doesn’t push you into insolvency. It means continual education (and re-education) to ensure you have the skills so to remain relevant in the job market. It means exercising and eating right (medical expenses are the single largest causes of bankruptcies in the USA).
But most importantly, it means achieving financial independence as soon as possible. Once your passive income covers your expenses it’s awfully tough to fall into poverty. After all, if your bills are covered from passive income and your lose your job, your lifestyle shouldn’t be adversely affected. You can look for another job if you want one, but if you can’t find a job you like then you’ll still be ok.
I understand that my children might not have the same attitudes towards money that I have. They might not be lucky enough to love and excel in a subject that happens to be lucrative. They might not care about early retirement or financial independence. However, regardless of whatever their attitudes are towards money, I want to make sure they won’t be burdened by me. They’ll be free to take risks, or start a business, or work in a low paying career they love without worrying about supporting me.
Most people associate more money (or other resources) with a better life. It’s the basis of most kinds of charity. The hope is that giving people resources will improve their life. Parents feel the same way – they want to provide a better life for their children, and they assume this means giving them money so they can have a nicer car or live in a better neighborhood. Giving our children money so they can have nice things would seem to be an obvious way to make their lives better, right?
The research is pretty clear – giving your children money, as a general rule, makes them weak. One of my favorite books is “The Millionaire Next Door” (affiliate link) – if you haven’t read this book yet you’re doing yourself a huge disservice. In it the authors have a phrase for providing ongoing financial support to children – “Economic Outpatient Care”.
The authors found that adult children who receive ongoing financial support from their parents have 98% of the income of children who don’t receive the parental support, but only 57% of the wealth. That’s a pretty damning statistic. The book goes into a lot more detail (and again, if you haven’t read it, you should). Intuitively it makes sense. Giving money to your children gives them a false sense of economic security. They live as if they have more money than they actually do. They come to RELY on the money you give them. They consider it part of THEIR income. They don’t see a reason to save and invest, as they can rely on rich parents to bail them out of any problem they have.
This research was primarily focused on adult children, but I think the concept is the same for younger children. The reality is that doing things for people makes them weak. You get good at making and managing money by making and managing money, just as you get good at lifting heavy weights by lifting heavy weights. If your kid went to the gym and you did all of the weightlifting for them, you wouldn’t expect their kid to get stronger, right? So why do we think that giving them the end result of financial success (money) will help them become good at getting wealthy? If a person can get the end result of work and sacrifice without the work and sacrifice, why sacrifice?
The bottom line is that giving our kids money (especially once they are adults) is a great way to ensure they won’t be financially successful and will remain dependent on our money.
I’ve always felt that the type of childhood that leads to success and riches later in life is the same type of childhood that rich and successful people try to prevent their children from having. We instinctively want to coddle and protect our children rather than let them struggle, fail, overcome, and become stronger. We don’t make the links between the tough times we faced as kids and the success we now enjoy. We want to give our kids money to help them live a good life. We think that if somebody had given us money when we were younger we’d be happier and wealthier today, even though the evidence is clear that giving children money leads less success and more dependency. On the other hand, an education (which to most people implies at least a bachelor’s degree) is expensive, and reaching your own financial security is even more expensive.
Money can’t buy happiness, but it sure makes it easier to be a good parent.