As more and more American families find their financial goals stymied by overwhelming debt, there is a debt-free movement gaining momentum. Millions of people have begun breaking the cycle of consumer debt in recent years, but it’s American children who face perhaps the greatest hurdle to true financial freedom: they’re growing up in a society where the number of 18- to 24-year-old adults declaring bankruptcy has increased 96 percent in the last 10 years. Today’s graduating college seniors will spend nearly 30 percent of their monthly income paying down debt, and it’s that perpetual and familial cycle of certain debt that Gayle Reaume is determined to break.

 

The American…Trap?

“What we’re ‘taught’ is that if we get a good education…we can spend all the money we make, and we’ll just make more,” says Reaume, founder and CEO of Moolah U in Austin, Texas. “It’s a trap that most Americans are stuck in. In this country, we spend 118% of our income. Unfortunately, there’s no easy way out of that kind of financial spiral.”

Reaume says personal debt and credit cards are the biggest risk for our kids, and ultimately, they start learning poor money management habits at home from the time they can understand language. She said the kids she sees at Moolah U are the ones whose parents want them to have a better life than the one they’ve made while swimming in debt. Through camps, after-school clubs, and classes, Moolah U teaches kids money basics. It’s a lesson in personal responsibility and leadership that many parents are learning alongside their children, but Reaume says a generation of young parents who are choosing to live without the chains of debt have an opportunity to normalize what Dave Ramsey calls, “weird”…spending less than you make.

“Children under 18 now make up more than a quarter of the U.S. population,” says Reaume. “These will be the people making financial decisions for themselves and the next generation in just a few short years, so now is a prime time for parents and educators to help prepare them for the future.”

 

Redefining Family Money Values: 7 Steps

Here are a few ways she says to get kids started thinking differently about money:

  • Call a family meeting and make a financial plan. As parents, we most often communicate in a top-down fashion. While the ultimate decisions about our family’s financial security fall to the grown-ups in the room, kids who don’t participate and “buy into” the family’s financial goals and plan of action won’t learn the important lessons they’ll need to one day make their own financial plan.
  • Give kids a voice. One good way to do this is to give them an overview of the family money plan and let them know which part of the budget they’ll decide how to spend. Maybe it’s the school lunch fund or the budget for extracurricular activities—if there’s only $100 for them to spend on sports, and softball and volleyball each cost $75, they’ll need to make a decision about which activity makes the cut.
  • Take back the power of the spoken word. When kids hear, “We don’t have enough money to buy that,” they start looking to lay blame or make excuses or bargain to help them negotiate for what they want. Instead, parents need to stake a claim on intentional money management and say, “I’m not going to use my money for that because it’s not in my plan.” And, if the kids helped craft the spending plan, they share that power, and will learn that money is a resource that isn’t ruled by impulses. The more kids are reminded of the plan, the more we as parents reinforce the importance of planning and self-control.
  • Give kids the option to earn money. Reaume suggests, not an “allowance” of free money, but money that is directly connected to the completion of a job. She says parents can “hire” kids to complete work as much as they would hire a contractor: select age-appropriate tasks and provide details about how to complete the task fully, then once the job is done, pay the worker the agreed-upon wage.
  • Teach children how to make their money earn money. A savings account in your child’s name may be the single most important first step in this process. It gives them ownership of their own money and helps them learn about how interest accrues. It’s a great way to begin talking to your children about saving and investing to grow wealth, not just spending money because they have it and then starting from scratch again.
  • Don’t take on any new debt. Pay down old debts until you get them to zero, then switch to a cash-only system for each and every purchase. It’s hard for kids to understand that your debit card takes money straight from your bank account and that it’s not the same as an unsecured credit card, so at least while they’re young, shop with cash to show them real money changing hands for the things your family buys.
  • Invest 10% of your earnings—every single month, every person in the family. If you had put away $0.10 for every dollar you’d ever had in your life, how different would your financial picture be today? Reaume says to work this plan into the family budget just like any other fixed expense. Setting a minimum investment each month teaches kids how to make their money work for them and helps them see their future as a long-term investment. Emphasize that this money will never be spent, but it will earn more money and contribute to income down the road.

Reaume says that if you share some of the details of your family budget plan with your kids, give them some responsibility for it, and continue to show them by your actions that you’re committed to the plan and not controlled by your impulses, you will have already made great strides in bringing up fiscally responsible adults. The key, she insists, is not waiting until they’re 16 and then wondering why they have no idea what to do with money or how to keep from blowing it.

“The concept of financial responsibility is a crucial skill that grows with each new real-life, real-money experience,” Reaume says, adding that kids who handle money and make their mistakes when they’re young will have a much brighter future than those who don’t have that chance. “What an incredible gift to give your kids, guiding them towards a path that will make such a huge difference in their fiscal future.”

Read the full article at: strategymagazine.com

Dream of your #family being debt-free? We’d add one more to the list… start a family bank! #familyfinance #debtfree #familybankgame