How to Set Up Your Kids For a Great Financial Future

Okay, Jim V’s question is up next. He says, “Question for the Money Guy Show: we have two teens in college. Their college is fully funded, and their Roth IRA is started. How else can we help our kids for the next 10 to 15 years? We have no financial worries, so they’re kind of like, how do we maximize and set our kids up for even more success?”

Well, I have a thought, and this will sound… You have a college kid, so you can tell me if this is insensitive. But I think about this, right? My kids are not quite yet in college. Not even really close, not quite, but one of the things that I think to myself is, as they go off to college, I’ve recognized the influence that I’m going to have on them will be much less than when I had them in the household. So a lot of the heavy lifting I need to do around setting them up and teaching them how to think about money and teaching them how to make wise financial decisions really needs to happen before they leave the house. Because once they’re out of the house, they’re a little bit out of my control at that point. They’re a little bit out of the influence that I get to have on them.

So it’s wonderful that you guys are in a fantastic financial situation. I think it’s great that you said your kids have started Roth IRAs. Now, I would be curious, did they start Roth IRAs? Did they have some part or some piece of that, or did you start Roth IRAs on their behalf? Because we see this happen both ways. And in my opinion, the kids that generally turn out the best from a financial decision-making standpoint are the ones who are part of the process. Mom and Dad sat them down and said, “Hey, we want you working. We’re going to fund a Roth IRA. Let’s do this.” In my experience, those kids have turned out a lot better than the parents who just recognize mathematically, “Holy cow, if I start a Roth for my kid at 6 years old and I fund it every year until they get out of the house, I’m going to make them a multi-millionaire by the time they get to retirement.” Learn why Roth IRAs are so powerful and why they might be the perfect next step on your wealth building journey with our Roth IRA Guide.

While that’s great and that’s noble, I don’t know that it actually did the same thing as teaching your child why investing matters and is something important. So I think a lot of the heavy lifting has to happen before they get out of the house. But their question, Jim’s question was, “Hey, they’re out of the house. They’re in college. What are some things I can do over the next 10 to 15 years to still help?” I love this question, Jim, because you guys sound like you’re on the right track. And the fact that you got them in college, congratulations. They’re in college. Hopefully, you’re measuring twice on the majors, making sure those things have big economic values, even though the college is paid for. Make sure you’re having those discussions on what is the actual education ROI after the fact. I’m sure that’s happening.

I love the fact that you’ve primed the pump with the Roth. But here’s kind of where you see all of this goes with the analogy of teaching them to ride a bike. A lot of the things we’ve talked about with raising good financial kids, so that they continue to be good financial adults, is the parts where you have the training wheels, where you’re modeling good financial behavior. You’re priming the pump by giving them matching dollars to do WTH when they start working. But at some point, just like when you’re teaching your child to ride the bike, you know, the training wheels are off, you take your hand off their middle of their back, and they have to ride alone. 

So that’s where we’re now at that point where I would encourage you to let scarcity come into their life. So many of my friends, I worry about them, my neighbors, and others, who have resources and have kids in college, and you’re doing everything in your power to keep them at what they’re accustomed to. I worry about that long term because it’s — you know, somebody on social media, there was a post or a Twitter post, I don’t know what these things are called these days, I’m getting old so I can’t keep up with all the changes. But they highlighted that someone overheard somebody say, “I encouraged my son to buy a used truck, but in the end, we just ended up buying them a new truck.”

And I’m like, well, you know, just because you can doesn’t mean you should. I mean, scarcity is — because if you start at the top, where do you go? But there’s nowhere to go but down. So keep scarcity in their life. Don’t load them up just because you can, because they need to learn to ride the bike on their own. I have just — and maybe this is my own bias, but I’ve seen it with my daughter. She comes home from college; she has a lot more questions now. Whereas I’ve always been — when we’re riding around in the car, I’m trying to give her — I’m like, “You people pay me for what I say. You ought to be curious too.” And she has never — I’m like, you get as much as all-you-can-eat buffet, and then she — she just has not had an interest. She’s done stuff; she’s never disappointed me. But it’s now that she’s getting into her sophomore year of college, she actually has questions about life. And I love it. I’m loading her up with as much education as I can to help with that mindset and understand the value of scarcity and kind of figuring out how to ride the bike on your own.

And then teach them to have a love for work. Because that’s the thing I think a lot of young people have a struggle with, is how do you go from this curated life to this life now where I’m on my own, and I have to work? And actually, how do you find the fruit and the sweetness of actually having to work? And so that’s what, just because you have resources, let them — there’s a reason. Think about all the wheels. I’ve helped so many people when we’re doing financial planning and estate planning, and we talk about designing the wheels. We talk about, “Hey, you have kids who are under 35 years of age. Tell me about their mindsets. Are they good with money? Are they bad with money? Because we don’t want them inheriting the seven figures too early, because they’ll lose their mind. You have to have an education and a maturing of your mindset and your relationship with money.” So let them go that course; let them learn the value of standing on their — or riding the bike. We’ll stay with the riding the bike analogy. Doing it without you and without the training wheels, they’ll be able to handle a lot more and be truly independent.

Whereas I think us as parents, the tendency is, “Let me go in there and make it as easy as possible.” You know, it’s interesting, Jim, you asked about the next 10 to 15 years. I want — like, they’re in college, but I want to give you a huge compliment. One thing I see every April when it comes time for tax time, your daughter, she works, and she has earned income coming in. She comes into the office; you sit down; you go through a tax return with her. “Hey, this is what.” And so she’s learning that skill. Teach them things like that that they’re going to have to know because they probably didn’t learn in high school how to fill out a tax return, probably aren’t going to learn that in college.

Then as they start making big life decisions about getting married, “Hey, here are the things you need to think about before you choose a spouse. Before you commit to buy a house, here are the right ways to go about thinking about buying a house, buying automobiles.” And then even as you guys age, I think one of the great things that you can do with and for your kids is, when it’s appropriate, now, college is probably not it, but when it’s appropriate, start having conversations with them about your financial life. Because at some point, if they’re going to be the benefactors of that, and they might even be the people that are executing your will, and they’re the people that are going to be in charge of your affairs, you don’t want the first time they ever hear about your financial situation to be posthumously. You want it to be while you’re here and you can explain it to them, and you can clear things up for them. You can explain the thought process so that then they can take that and utilize that in their own lives and their own planning and be able to apply some of the things that you’ve done.

I think having that open line of communication with responsible kids makes tons of sense. I do, and I know this highlight’s getting way too long, but I would put a fourth thing, which is advocate for yourself. Because I’m sitting here thinking, teaching your children to advocate for themselves. My daughter had a disappointment that she found out she didn’t get into something. And I said, “How did that make you feel?” And she’s like, “Man, I thought I had it. I applied for this; I thought I was going to get it. I’m more advanced than these people. How did I not get it?” And I was like, “Well, if it’s really that important to you, I was like, you ought to write the professor and just ask him what did you screw up or where did you have shortcomings? Because I was like, if this is what you’re going to do for a living, you need to kind of know if maybe you’re — I don’t want this to be like American Idol where you think you’re good at something and then everybody’s laughing behind your back because it’s all in your head versus actually being an aptitude and a skill set.”

So she wrote the professor, and he says, “Oh, no, no, the reason we didn’t — you were definitely came up in discussions, but we were looking for more kids that could model and had this skill set, and you we just knew that you had not had enough exposure to that. But here’s — here’s the rest of the story.” This is why advocating for yourself, because you never — remember, everybody always says luck. What is luck? Luck is actually having the talent that meets the moment of opportunity, and execution occurs. Is that the professor that, “Hey, but because you reached out, why don’t you just come to a few of these? I want you just to come see the classes and so you can see what they’re doing.” She went, even though she wasn’t in this special program. And the professor was like, “Man, you’re actually — you do better on those things, even though we haven’t trained you on it, part of it was because she did some interning here and knew how to do after effects when nobody else in the room did. And he’s like, you — you need to be in this class.” And they — and they because she advocated for herself and asked the question.

And I — I couldn’t help but — I mean, I was smiling, and she’s going to kill me that I’m telling this story, but it is one of those things where I think we all, anybody who’s successful, you can remember a time where you’re disappointed, but you still went and pushed it a little bit further. You know, like, I think about how I got my first job by going and interviewing a client of the firm I wanted to work. That’s what got me the job. You got to do stuff that other people won’t do. Most people will take failure and just accept it, and that’s what the system is designed for. But if you go and ask, and you show that you’re above and doing things differently than the general masses, life is going to be better for you because you’re willing to do the stuff that other people won’t do. And that’s where success lies. So, Jim, teach that skill set, have those discussions, and I think you’ll bear the fruit from that in the long term. Love it. For more information, check out our free resources.