Wealth is Good
Cash Flow Is Better

A recent Pew Research study confirms what most of us already know — a growing number of adult children are either delaying their departure from home or are moving back after a false start.

In all fairness to this generation of young adults, they just happened to enter adulthood in the midst of a pandemic and a fundamental restructuring of our economy

That’s something the children can’t control. But what can be controlled is how well prepared they are to deal with it. And their success or failure on that score will impact not only their own financial future, but also yours — for the longer your children remain financially dependent on you, the more it can delay or even jeopardize your retirement.

So, what can you as a parent do to reduce the “boomerang” risk and ensure your kids are financially independent?

Set Expectations: Share the Bigger Goal
When raising our two boys we established and tried to achieve three broad goals. We communicated these goals to them early and often. The hope was that if they had a clear understanding of what was expected of them it would help to anchor them and give them focus.

We summarized our goals as “IRC”:

Independent (learn to live independently)
Responsible (take responsibility and be accountable for your actions)
Caring (care for and respect others…and yourself)

An important part of achieving the first goal — of becoming Independent — meant learning how to manage their own finances. For help with this we were fortunate to receive some well-timed advice. At our oldest son’s first birthday party a couple we knew mentioned that they set up a savings account for each of their children just before they were born. The couple deposited into the accounts every dollar the kids received on birthdays, holidays, and special occasions.

Start Early With Savings
Because the couple started so early, over the years their savings grew to a tidy sum. This was our first lesson, and it got the ball rolling for us.

So we immediately opened a savings account for our firstborn. Not just any account, a passbook savings account. Why? Because, unlike a statement savings account, withdrawing money from a passbook account is inconvenient; it requires actually going to the bank — and during banker’s hours no less. But inconvenient is what we wanted, for if making withdrawals was as simple as using an ATM card or clicking a mouse, then it would have been much easier to yield to the temptation of taking out some money “just this one time.”

Make It a Team Effort
Soon our oldest son was joined by a younger brother and before we knew it, they were both in middle school. It was then that we introduced them to their savings accounts and encouraged them to take a more active role in the activity. Whenever money came their way, they accompanied us to the bank. With each deposit came a sense of accomplishment, knowing that they were contributing to a steadily growing savings amount.

Also, as an incentive to start adding their own money to the gifts they received from others we contributed a dollar-for-dollar match to each child’s own deposit, much like a 401(k) program.

Add Investments to the Mix
Not too long afterwards, we introduced an investment component to the mix. Each child (actually, they were young adults now) could allocate a portion of their savings to one or two stocks. In keeping with the “teamwork” philosophy, stock selections were jointly made by the whole family.

Adding stocks made things a lot more interesting and also increased their engagement considerably, because it introduced the element of risk. Up until then, there was only one way their savings balance could go — up. Now it could go down, but it could also rise faster than if it were pegged to the bank’s low fixed interest rate on the savings component.

Some stock prices did fall, so as these lessons were learned and as they began to understand more about how the stock market worked, we allowed them to make a small number of additional trades. (And to be fair, my wife and I secretly agreed to make them whole if by the time they graduated college their stock picks didn’t at least break even.)

Monitor Progress With Financial Statements
By the time the boys were in high school they were fully engaged in this effort. Capitalists that they are, they even started making fairly sizable deposits into the account from after-school job earnings.

As “portfolio manager” I created and distributed quarterly account summaries. These summaries helped them monitor their progress and also prepared them for reading and understanding the financial statements they would later receive and use after leaving the nest.

The End Game: Setting a Final Goal
As high school graduation approached, each account had grown to over $15,000. That was considerably more than any of us had expected. With both boys planning to attend four-year college, we decided that the accounts would be turned over to them after earning their undergraduate degrees. This gave us an opportunity for a final shared activity — goal setting.

The logical place to apply the money was on college debt. Average student loan debt for college graduates who borrow is now nearly $30,000, so repaying all or a healthy chunk of it creates an opportunity to begin adulthood in a strong financial position. In our children’s case, college was (and continues to be) paid for by dear old Mom and Dad. So they have an even better chance at not only being debt-free when entering the working world, but actually having a considerable amount of savings to help them get — and hopefully stay — ahead.

Lessons Learned
When we opened the first savings account around 20 years ago, we didn’t know what it would lead to. The activity evolved and changed over time and, for us, it ultimately created an opportunity to accomplish many things.

It introduced our children to the concept of saving and the positive effects of compound interest over an extended period of time.
It introduced them to stock market investing, risk, and the learnings that come with failure.
It gave our children a hands-on opportunity to set and achieve financial goals.
It evolved into a process involving engagement, family teamwork, and collaboration.
And it did one other thing — it gave our children an opportunity to get ahead early in the game.

Hopefully the experience will nudge the odds in favor of reducing their financial dependence on us as they enter this brave new world. Perhaps this approach can be used in some fashion by your family or by others close to you to help their children get ahead, too.

Have you ever been at a grocery store, or better yet a toy store, when a child expresses a very strong desire to own an item for sale? If a parent ignores or outright refuses the
child’s request it could lead to a very noisy scene, possibly including some crying (sometimes by the parent but usually the child).

If you listen closely, you’ll notice that how a child cries when they want something is different from how they cry when they need something – for example when they’re hurt and need attention. You can tell the difference instinctively.

When it comes to adult purchases there are also wants vs. needs. For example, we all need shoes; but how many pairs do we really need? And do we really need to replace that perfectly fine 48-inch HD flat screen TV with the newly introduced curved screen model (at twice the price), at least right away?

So in your ongoing efforts to squeeze more money out of the monthly budget, when considering a purchase – especially a large purchase – ask yourself: “Is this a want or is it a need?” And even if it is a need, “Do I need it now or can it wait a month or two, or even longer?”

In an earlier post, drawing from Thomas Stanley and Willaim Danko’s “The Millionaire Next Door”, Daniel Goleman’s “Emotional Intelligence”, Carl Jung and the Myers-Briggs personality type model, and also from my own experiences and observations, I listed eight behaviors the financially successful tend to have in common. They are…

1. Goal-oriented
2. Organized
3. Open-minded
4. Action-oriented
5. Frugal
6. Self-disciplined
7. Team-oriented
8. Persistent

Each behavior is important but which do you think is most important?

At the risk of being politically incorrect I will go out on a limb and pick one behavior that appears to play more of a leading role in influencing financial success than the others. That behavior is #6, self-discipline.

Setting savings goals – and consistently achieving them – requires self-discipline. Making extra principal payments every month to repay a loan two years early also requires self-discipline. So does resisting the urge to make a large impulsive purchase.

Each of these examples of self-discipline involves delaying gratification in one way or another. Studies have shown that delayed gratification is strongly associated with not just financial success but success in life generally.

For example, in 1972 Dr. Walter Mischel of Stanford University conducted a “marshmallow test” among six hundred children, aged four to six. In the experiment the children were given a choice of receiving one marshmallow now or two marshmallows after waiting twenty minutes. In 1988 Mischel reconnected with the participants and found that those who could wait longer for the reward tended to be more successful at school, with diet, and in other measures of success.

In his book The Future of the Mind, Michio Kaku goes on to say, “a study done in 2011 indicated that this characteristic continued throughout a person’s life….The children who exhibited delayed gratification scored higher on almost every measure of success in life: higher paying jobs, lower rates of drug addiction, higher test scores, higher educational attainment, better social integration, etc.”

So the next time the lure of immediate gratification threatens your financial routine, resist the urge. Choose two marshmallows instead of one.