Mark Berg, a qualified financial planner, recently provided his thoughts on how caregivers can assist their kids financially without instilling a sense of entitlement or developing detrimental habits. During a conversation on “The Long View” podcast, Berg highlighted the necessity of initiating financial education early and establishing clear expectations. He proposed that discussions about money can start with children as early as six or seven years old.
He advocates for the use of physical cash to help youngsters grasp the idea of money and the trade-offs that accompany spending choices. Additionally, Berg encourages parents to promote delayed gratification, suggesting that children should work toward their wants rather than always receiving immediate rewards. As kids mature, he advises parents to set clear boundaries regarding financial support, specifically concerning college costs.
He shares an example of a family with limited financial resources who set an annual cap on their children’s education expenses. By communicating this cap in advance, the children were able to manage costs effectively through community colleges, accelerated graduation programs, and scholarships, ultimately graduating without debt. Berg warns against excessive saving for college, especially if parents presume their children will enroll in expensive graduate studies.
Advice for educating kids about finances
He recommends aiming to save approximately 80% of estimated expenses while children are still young and adjusting that figure as required. Furthermore, Berg highlights the necessity of balancing college savings with retirement planning to maintain long-term financial health.
To assist children in forming sound financial habits, Berg suggests opening a checking account for them early and creating a credit history as soon as feasible. He underscores the importance of teaching kids to pay off their credit card bills promptly in order to avoid interest charges and late fees. Berg also urges parents to motivate their adult children to achieve independence as soon as they can.
He proposes measures such as gradually increasing rent for adult children living at home to promote financial autonomy. Regarding wealth transfer to future generations, Berg suggests proceeding slowly while carefully evaluating children’s decision-making abilities. He advocates for matching a child’s income from a summer job and depositing that amount into a savings account or designating annual gifts for education or retirement to prevent lifestyle inflation.
In conclusion, Berg stresses that effective communication, wise financial planning, and instilling a sense of accountability are crucial for aiding children in developing a constructive relationship with money and positioning them for long-term financial achievement.
