Ever wondered why so many kids are still at home way after university? Our main task as parents when it comes to money is to transition our children from primary school where we pay for everything, to their first job where they are able to pay for what they need.  The challenge is that for many of us, we over-correct on our own experiences.  We try and take away the struggle we experienced by giving our kids everything we never had - but in doing so, remove the valuable lessons they need to survive... Lessons that include the satisfaction of hard work, resilience, ownership, and a healthy relationship with money.

I share with you 4 steps to get your children to stand on their own and embrace their independence!

Show Notes

• Step 1: Give your early tweens and teens a small allowance to cover their WANTS and gifts to others

• Step 2: Grade 10-12: a bigger allowance to cover their non-school expenses

• Step 3: What to consider for your children at university

• Step 4: The first five years after university

• The parable of the butterfly

• The challenge of ‘giving our children everything we didn’t have’

• Transformation from parental dependence to self-reliance

• The need for us as parents to re-examine our own experiences

• Discerning a need from a want

• The 'middle third' philosophy

• Providing the opportunities to fail fast in a safe environment

• Understanding the skills of budgeting, priorities, time management, trade-offs and consequences

• Giving your children the ability to balance real-world demands of work, study and social activity

• Ensuring that you are not robbing from your future self

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Transcript

Speaker 1:     00:00           Welcome to Working Women's Wealth where we discuss what it takes to build real wealth in a way normal humans can understand. Here's your host, Lisa Linfield.

Lisa Linfield: 00:21           Hello, everybody, and welcome to today's episode of Working Women's Wealth. We're going to be chatting about how to teach your older kids about money, their transition that they take from high school through university and onto their first job. One of the things I've really observed greatly, in terms of working with people and money, is that this transition, especially that kind of university time, is very much a crucial piece, a very foundational piece, of people's transition as adults with money. The way it's managed is our responsibility, as parents. I think it's something that we should all reflect on quite strongly, young children, children going through this time, or even with our older children, and gain their experiences and insight.

I'm going to do this one a little differently, because there's a parable that helps to explain this transition a lot more graphically or meaningfully than I could ever. It's a short parable, and then I'll chat through why I think it's relevant. There was once a little girl and a beautiful butterfly. One day, much to that little girl's delight, she came across a beautiful golden cocoon. She watched in amazement as that golden cocoon started to move. "I wonder what is happening?" she asked herself, a little worried, but as she watched, it became clearer. Out of the top of the slightly end, a small hole appeared, which slowly grew bigger to reveal the top of the beautiful butterfly.

Then, there was nothing. It was as if the poor beautiful butterfly was so exhausted by the small task of opening the top hole that it needed to rest. The little girl was a kind and loving little girl, and it felt so sad that the beautiful butterfly had to struggle so much and was so exhausted. So, she decided that what she thought she should do to help the butterfly out was to carefully open the hole big enough so that the butterfly could just easily fly out.

As the butterfly regained its strength, it began to move towards the hole the little girl had made. The beautiful butterfly was delighted that she wouldn't have to struggle so much, because it exhausted her, and so she moved a little closer to the opening. As her eyes adjusted to the wonderful world out there, her instinct to fly grew bigger and bigger.

So, the butterfly took a deep breath, used her wobbly legs to push out of the cocoon, and lifted her magnificent wings to fly. In great disbelief, the little girl watched the butterfly fall straight to the floor. She had seen her try to lift her wings, but all they could do was open a fraction. As the butterfly lay dazed on the floor, she struggled to understand how she could know that flying was so natural, so instinctive, and from the floor, she could see her friends soaring in the sky above, yet she was unable to.

That night, the little girl asked her mom why the butterfly she had helped was unable to fly. "My precious angel," her mom said, "What you thought would help, would make life easier, has ended up hurting the butterfly. You see, the butterfly needed the struggle within the protection of its home where it was safe to rest. The process of struggling to get out enables her to get herself strong enough, so that when she no longer has the safety of the cocoon, she is able to fly by herself."

Our children undergo a transformation process as they leave school, and in school, we give them everything. We give them their food, their clothes. We pay for their tuition, their entertainment. They had this transition that goes from everything being paid for to their first job, when they earn a salary, have to pay for their food, and pay for their own living accommodation. So, there's this transition from everything to nothing.

For many of us, we perceive that transition in our own story as a hard one. Last month, I reflected with a client of mine as to why her daughter, at 28, was still living in a flat that my client paid for, even though her daughter was employed [inaudible 00:05:04] been made to work since she was 15, and through university, the only thing her parents paid for was her tuition. So, she wanted to make sure that her children didn't struggle like she did, and so she paid for everything. But now, she's frustrated, because she can't seem to get her daughter to stand on her own two feet.

This story has much in common with many of us. We perceive that the work that we did at school or university was a hardship compared to those kids who got to cruise through life because their moms and dads didn't have to work. So, what we do is, we try and right that wrong by giving our kids what we think is the best, the best that we can, and that, in our minds, or so we say, helps them to focus on their studying, so that they can get the best results possible at university.

The challenge is, like that well-meaning little girl, we lose sight of the fact that it is exactly that struggle that builds resilience, that builds pride, that builds crucial skills like time management, budgeting, responsibility. It teaches us to rock up at 8:00 a.m. despite the hangover, because we have to open the office by 8:15. Like the butterfly's cocoon, many of the lessons we all need to learn in life are better taught in the safety of our home and in our university life, when the impact on our careers is not as big. The consequences when we mess up, when we don't pitch at work because we have a hangover, but it's our first job in the career that we want to do, that's a really hard impact, when we fall to the ground.

So, while we try to give our children everything we didn't have, and let them live as children for a little longer, we end up robbing them of many of the lessons that are better learnt in these more controlled environment. We actually prolong the time that they need to get them into a position of responsibility. At the heart of the matter is our need to reexamine our own experiences, not through the lens of the 20-year-old who wishes she was able to go off partying, but through the lens of an adult, looking back and realizing how valuable that process was in preparing you to be the successful adult you are.

As a young child less than 10, my brother and I used to knock on our neighbor's doors. We used to call it bob-a-job, get a bob for a job, and asked them if they had jobs for us to earn extra money. We used to wash cars, sweep driveways, do whatever. As a young teenager, I started working at my mom's catering business as a waitress from a very early age, and at medical school, I worked out that babysitting was  I hated kids. I'd never grown up with any young kids, and I was terrified of them, so terrified of them that when I got my first job out of university, I had a clause in my contract that I wouldn't treat outpatient kids, kids who walked in, unless they were part of ICU, or ward rounds, or something where the child needed it. That's how much I didn't like kids, yet I still learned that, in order for me to get my work done at med school and earn the money that I needed to do, that looking after kids would be what I needed to do. Suck it up, princess, and get on with it. I even saved enough at university to pay for a flight back to America to visit my friends and family when I was an exchange student in Wisconsin. So, I'd learned that I needed to work, and I needed to manage my time, because that's what I needed to do. Would I have liked to be like all my friends whose parents paid for everything, so that all they had to do was focus on studying? Of course, but do I even a little bit reluctantly admit that it was crucial to me being able to leave university, get a job, and within my first year of work, find an apartment to share with friends and leave that nest of my parents'? Absolutely. Our struggles strengthen us, and they strengthen our children.

So, coming back to the topic at hand, our goal as parents is to get our children from primary school, where everything is paid for, to their first job, where they can stand on their own two feet, paying for their living costs, their food, their own clothes, their entertainment. That's our job, to slowly moderate that transition in the safety of the home, allowing them to have periods of struggle, of understanding consequences and managing them. If they've spent all their money and they can't afford to go to the party of the century, and they have to stay at home with us that night, then we mustn't jump in and save them, because it's part of learning and part of that growing process, even as much as they hate us that night.

So, I want to [inaudible 00:09:58] you through the four stages of independence. The biggest question that I always get asked when it comes to this is how much, how much should their allowance be? My dad once met up with an old friend of his, and this guy apparently had really great kids. One of them was even the head prefect of his school. My dad asked him, "How do you raise great kids who aren't spoiled?" His friend's answer, which I always remember is, "You have to keep them just a little bit short. Give them enough money so that they can keep up, but not enough money that they lose their drive."

When it comes to how much, my dad used to make me survey the class and come back with six to 10 kids' pocket money, how much it was, what it included, what it didn't include, and I knew that my mom was going to phone them to discuss it. So, what he was doing was making me justify why I thought that I should get a raise. He also was getting a sense of what the average was, but he was telling me and teaching me a fantastic lesson, in that I needed to do the work. I needed to substantiate, and go out and find out what was average.

A friend of mine has a middle third philosophy. She thinks that her kids mustn't be at the front third or the back third of the class, in terms of these things, and she gets her girls to survey 20 people when it comes to pocket money, when it comes to going to a club that they want to go to, and say everyone's going to and she isn't. In those 20 names, her girls know that she will call one of those parents to verify that this is correct. So, that helps her to gauge.

Whatever your philosophy is, getting your kids involved in building the argument for their viewpoint, corroborating it with fact, and weighing their input into the discussion helps to teach them those skills that we all need to approach our boss when we believe that our salary is shorter than market average, because you go it armed with research and facts. Again, it's a great lesson to teach your kids. The challenge kids face is that the real world doesn't protect them like what we want to, and so they need the skillset and resilience to deal with that.

The first stage is that we look at our early teens. For some of you, it might even be tweens, if they're more mature. We need to make sure that we give them a small allowance that covers their wants. It's hugely important, at this stage, that you cover your kids' needs, and that the allowance covers their wants. Their needs are things that relate to their food, basic clothing, schooling, sport, and their wants are things such as downloads of music, airtime, keeping hip with their clothing. The line is really hard to maintain, but it's an important lesson to teach kids from a really early age.

I have adult clients that struggle with this concept, and I really believe it is the foundation of humility and appreciation. For people to know that difference, between needs and wants, and to appreciate that there is a difference, really creates humble adults, adults that appreciate it when they have not only their needs covered, but have enough to cover their wants. It requires a lot of discussion between you and your kids to discern what is a need and what is a want.

These days, a cellphone is probably a need from the age of 13. It wasn't when we were younger, but it probably is a need. It would need to be able to make a telephone call, and it would need to be able to probably do data for messaging, because that's how kids communicate. So, the provision of a basic phone and basic data would be a need, but the download of videos or sending videos to friends, or anything that consumes that major bandwidth that requires lots and lots of data, well, that's a want.

I remember the story of a little boy who was struggling with this concept, and knowing in his heart something was a want, not a need, he turned to his mom, and he said, "Mom, I want to need it." This is also a phase when, being a little short, you want to encourage them to work for the added extra, not formal employment, they're young, but jobs potentially that you or your friends could pay for. For example, do you want all your old photographs scanned, and indexed, and saved to your computer, or there's a million digital uploads which have 15 versions of the same thing. Do you want someone to reduce them down to one? Your office might need expense slips photographed and uploaded into their accounting software. Be creative to find kids the jobs that aren't household chores.

By this stage, kids need to learn that household chores are part of a community living and aren't paid work. We all just have to make sure that the house is neat, tidy, and respectable. It's part of what we do as a family. But now is the time to start teaching them that if they do work, and some of it might be completely menial and boring, but if they do work, they will get paid, and to create that reinforcement loop that hard work is good. It generates revenue that helps us to do the things that we want to do.

The second stage is grade 10 to 12, and this is where we build ... We give them a bigger allowance to cover basically their non-school expenses, needs and wants. This prepares them for that college and university phase, and it's hugely important that your children learn to budget and prioritize. Here, their allowance needs to include all their entertainment, their phone and data, their clothes, and actually, the vacations that they want to take with their friends, as well as gifts for their friends' birthdays.

I know that we think that the most important thing is getting good grades at school so they can get into universities, and that good grades at university then lead to good jobs, but as the application forms of so many Ivy League universities will show you, that they are also interested in the jobs that they've done, the good grades that people get, and the work experience in service of community that allows them the know that your children are able to hold responsibility, manage their time, and are contributors, not just takers, and that contribution and not just taking is also with respect to the family budget.

These days, the children are not just rated on their grades, but their holistic contribution to the society in which they live. It's often the hardest on us as parents, specifically in country where children can't drive until they're 18. It often means that we have to do the work to get them to and from their jobs, and that for example, if they can only work on holidays because their school schedule doesn't allow it, that we have to try and find a way to get them to their jobs when we're needing to get to ours.

But we also need to change our mindsets, and help our children change our mindsets, as to what is work. In our days, it was physically going somewhere to earn money, but in my article, Six Ways to Make Money Sitting on the Couch, it takes you through computer-based jobs such as testing websites, selling your cellphone photos, writing copy for people's blog sites. I mean, yeah, it shocks me, but the standard level required to write a blog post is sixth grade. Children can take surveys. They can do surveys. There are so many things that they can do that doesn't require them to ever leave home, just to have a computer and some WiFi. So, we all need to rephrase our brains as to what is out there that our kids can do to earn money. We might need to support them, for example, with getting a PayPal account, but it is easy, easier these days to find home-based things that people can do to make money.

By the end of this phase, they should've learned budgeting and trade-offs, and in that trade-off, doing without some of the lesser wants. If they have too much money and never have to trade off, they will miss out on one of the greatest lessons of life, is that there's always a scarcity of money. There are always more things that we'd like to do than the money that we have. They should also have learned about forward planning, so for example, if they're going away with their friends on holiday, that they actually have to save now during the term time, so that they can have that holiday later on. That delayed gratification lesson is one of the most important lesson that all of us can learn.

Stage three is university. When I was hosting a great bunch of grade 10 to 12s on a training course about money, we discussed, what were their assumptions? What were their assumptions about money? Who was going to pay for what? Part of the discussion that really fascinated me was when we actually got to the university fee. There were various different opinions on other things, but the actual tuition fees, the assumption that they had was that the government or their parents should pay it.

Now, having spent a year as an exchange student in America, I actually crossed two sets of senior grades, because our school year is January to December, and in America, the school year is September all the way through to June. So, I crossed the one ending set and the one beginning set of seniors. My friends there, and it was validated twice, did not assume that their parents or the government would pay. They assumed that they would need to apply for bursaries, or scholarships, or student loans, in order that they pay for their tuition. Their going in assumption was that they would pay, and the only way to reduce that load of payment was to work now at school to save the money that they would need for textbooks and registration. It wasn't even a discussion, whether or not they would work when they studied. The more they worked as they studied, the less the debt burden would be.

My client, whose 28-year-old daughter lives rent-free, she went away for a girls' weekend with her oldest, most dearest friends, and as one does after a lot of wine, they got to discussing their young adult kids. The common frustration that all of them had, that their children weren't embracing independence and were still reliant in some way on them. They all came to the conclusion that, in response to their having little and being made to work, potentially they had over-corrected, in terms of trying to remove all forms of struggle, financially, from their kids, all in this quest of giving them something I didn't have.

As she relayed their communal reflection to me, my heart just broke. These women wanted so hard to protect their kids from struggling, but in the end had grounded their little butterflies. It was by no means irreparable, but it's tough at 28 to learn the lessons you should've learned at 20. There's so much more at stake.

So, at this stage, it's important that you go back to providing only for the needs of your kids, and to a certain degree, you even focus on a gradient maybe from first year to third year university that pays for less and less. Your kids need to find a way to earn money and maintain their grades. It's more important that they get 78% and earn their own money than 84% and live off you. What they will learn is so much more important. And let's be honest, they need to get enough to do what they want to do going forward, but they also need to demonstrate to their future employers and themselves that they can balance the real-world demands of work, study, and social. It's no point protecting our kids from that. It's what we all have to do, and the world doesn't ease them into it. The world smacks them when they get there.

My guidance at this stage, at university, is that we pay for their tuition and their accommodation, and maybe in first year, their basic food needs, but they need to pay for everything else, their social, their clothes, their entertainment, their holidays. I look back on my own university time, and I can't lie to you. I do wish that I had had it differently. Med school was grueling. Our vacations were way shorter than everybody else's, and whilst we were back at school right at the beginning of the school years, my friends used to come back a month after me. Our workload was impossible, because we used to work in the morning in the teaching hospitals, and at lunch, drive back to lectures, do lectures until 5:00, and then study in the evening. But Friday nights and Saturday nights were also spent working, either babysitting or waitressing, and Saturday mornings, I had a job as a vet's receptionist.

I guess that, if I'm honest about it, part of my going to Oxford when I was 28 was to have that university life I felt others had, that I never did. But as I observe my friends, my school friends, my peers getting older, and many of them struggling with money, and this up-and-coming generation of young adults that are still staying at home in their late 20s, I look back at that time at university with gratitude. Our family circumstances meant that I didn't have the choice back to pass every subject at the time, and I would've lost my bursary if I didn't. Anything that I wanted to do required me to go out and earn the money I needed. I still managed to graduate in the end in the top half of my class.

Could I have done better? Could my grades have been better if I had've had more time? Maybe, but there was nothing that I didn't do. I still managed to get, in the big scheme of thing, that first job I needed in my career, and ended up, within 12 months, actually changing to financial services. It didn't stop me. It grew me as a person, needing to do all of that, and I believe that I am much more financially independent because I had that experience. Was it easy? No, but part of that was that I was comparing myself to kids who were given everything. That's what I come back to. Each of us, as adults, need to look back at that period of life with adult perspective, the ability to balance that experience and not just as a child looks at that experience, which is, "Oh, woe is me."

The last stage is the first few years after university. It's really difficult for me to give guidance here, because each of our kids will come out in completely different positions. Some may come out with student loans. Others may get their first job way away from home, so we can't support them if we wanted. Some might get their first job near home and move back in with us. So, the variety of circumstances that each of our children will face is hugely difficult, but I do want to give you a little bit of perspective on some of the things that I'm observing.

One of that is that, because parents are supporting their children for longer, they're not getting to save what they need to save in order for retirement. Universities are expensive, schooling is expensive, and so we pause our own saving for retirement in order to give our kids everything. The challenge that that leaves us is that actually, it backfires, because what I'm seeing is parents who haven't saved enough money. They've sacrificed everything for their children, for the best interests of their children. Then, it comes back to bite them both, because their children are then having to support their parents, because the parents haven't saved enough money for retirement.

So, I really want us to all to kind of step back, and I urge you to think quite strongly about the lessons that we want to teach our kids through this period of time, because one of the things we don't want to do is to be a burden on our kids because we haven't saved enough for retirement. Not only do I observe that it's better for kids to be able to stand on their own and earn their own money, I also think it's better for your kids if you are able to support yourself longer. That only comes from saving really early on for your retirement, so that you're financially independent. Yes, we might need to help and support our kids in that initial transition as they get up on their own two feet and need that extra month's deposit for the rent that they need to pay, or even for the deposit for their first house, but all of that needs to be managed within the context of helping your kids do this by themselves. So, if you do help to pay that deposit, you make sure that they pay you back, not because it's mean or because it's nasty, but because kids needs to make sure that they have this phase transitioned well, that they have the pride that they've managed to stand on their own two feet, and that they don't expect that you will continue to pay for things as they get older. You need to look after yourself in this respect, because you otherwise will be a burden on your kids.

My mom has a great friend who has an expression that I absolutely love, and that was, "Kids need to learn the difference between having a safety net as parents and having a hammock that they park often." For each of us, that's our challenge, is how to create that difference between it. I definitely by no means think that I have this sorted. My kids are young, and so I still have to go through this phase, and I know there are unique challenges that face our kids, that we didn't have when we were younger, so I really would value your feedback, either engaging on our Facebook page, Working Women's Wealth, or any other means, through Twitter, Instagram, LinkedIn, on whether you either agree or what thoughts you have, in terms of raising kids.

This is definitely one of those where the power of the village to help each other navigate this new world that we face in is hugely important, in terms of helping us all grow through this experience. I can share my observations, but as I go through it, I guess those realities are always going to be different. As I mentioned in episode 40 on teaching your kids under 12 about money, I have three girls, and they are hugely different when it comes to money. I'm sure that each one of them will come with their unique challenges, but I think we should observe and learn from others, because it might help us not to have as much pain through our own learnings. I'm Lisa Linfield, and this is Working Women's Wealth. I just hope that each of you has a great week this week. Take care.