When Kids Leave the Nest

Talking to kids about money every day and modeling good financial behavior are essential if we are to raise children whose adult lives are not going to be enslaved by consumer debt. If you think “enslaved” is harsh or overly dramatic, consider this example provided by Joshua Kennon, author of Investing for Beginners.

Think about the monthly expenses of a young adult of moderate lifestyle starting out in the world: a cell phone bill ($50), a car payment ($275), insurance ($100), and rent ($500). These very basic expenses total $925 – that’s $11,100 annually for a phone, a roof, and a car.

Now put these few expenses within the context of a potential starting salary for careers like an accountant ($38,000), a mechanical engineer ($55,000), or a public relations consultant ($45,000). Respectively, $11,000 amounts to 29%, 20%, or 24% of these gross salaries. Food, clothing, gas, and entertainment have not yet entered the picture. Kennon asserts that spending decisions in these everyday areas – often on trivial items – determine the financial success of young adults.

Money adds up

True, your child might hunt for the best bargain when planning a big-ticket item, like a computer purchase. However in a two-week period, he or she might spend $50 on dinners out, $5 at the gas station for a soda and a newspaper, $18 at the movies, $75 on athletic shoes, $30 on video rentals, $85 for tickets to a concert, and $9 for a latté and biscotti. None is an outrageous expense, but together, they become significant: $272 in just two weeks. Kennon calls it “spending your millions one dollar at a time.” It’s easy for young people (and the rest of us) to unwittingly dribble away savings on trifles.

Alternatively, Kennon says, by investing $3 a day, a young adult can be a millionaire by retirement.

The danger of duplicating a parental lifestyle

Young adults without an awareness of working within financial limits can quickly amass debt trying to support a lifestyle equal to the one their parents provided for them. What happens to setting aside money to begin an investment portfolio, save for a home, or go on to school? These goals often get pushed aside in favor of paying ever-growing balances, the result of easy credit.

According to Kennon, debt is the financial equivalent of handcuffs. Consumer debt and trivial purchases become very compelling reasons to teach your family’s young people how spending is supposed to work.