Empower your kids financially now!

It seems almost counterintuitive to suggest that you can use this current horrendous financial crisis to empower your children. But actually, it’s possibly one of the best chances you’ll get.

The first lesson that we parents need to understand is that kids see, hear and understand much more than we give them credit for. For example, your teenager may communicate with you via monosyllabic grunts, but the chances are he has picked up on your stress and tension despite your best efforts to conceal them. Adults speaking in whispers, changing subjects or pasting a huge fake smile will not have the desired effect and will be the opposite of reassuring.  Rather take the opportunity to start openly discussing money with your children.

Communicate honestly and directly

Because this pandemic is a global crisis affecting so many, it provides us with a window to start the money conversation. If you are fortunate enough not to have been financially impacted, you and your children certainly know many people who are suffering financially. Obviously you must tailor your conversation to the specific age group you are addressing, but your children are likely to be more receptive to listening as most if not of all their friends are discussing money issues and talking about their changed lifestyles and financial reality.

Parents often want to shield their children from anything negative, but that’s generally not to their benefit. We have to find the balance between sharing potentially unsettling information yet making them feel secure.

Us and We, not You and I

During your discussions, it’s important that you share with your kids your challenges and achievements so they understand you are all in it together, and together is going to be the best way to go forward. You might need to change your language to convey your point effectively. By replacing ‘you’ and ‘I ‘with ‘us’ and ‘we’ you can change their whole perspective, and create something that they feel a part of. Replace the phrase “we can’t afford …” with “we are choosing to spend our money on …”. It’s okay for them to see that you don’t necessarily have the answers to everything, as long as at the same time they see you are taking steps to learn those answers.

If you have been bemoaning the materialism of their/your existence, you now have the perfect opportunity to explain why you are saying no, and also to teach them to cope with disappointment. You can show them utility bills or credit card statements and discuss ways to potentially reduce them – when you bring the children on board you empower them.

Earning and saving money

With virtually the whole world turned upside down it could be that their historical ways of earning money are not open to them currently. Encourage them to think creatively and explore alternative options. They might need to settle for work that pays them less, but if they discover how to adjust their expectations, they will have learned yet another invaluable life lesson.

Share with them the different short and long-term saving options available. When we are young we often think that we have decades to prepare for retirement (which we do) so there’s no point in starting now. With our current reality you can explain how if time is on their side it will take less effort to set themselves up financially for a secure future. The many people whose lifestyles have been ruined, and who have nothing to fall back on, provide us with a stark reminder that we need to save money during the years of plenty and not rely on a guaranteed continuation of our good fortune.

End of year tips

If you are having this conversation in December, then it’s the perfect time to show them how you take advantage of the various ways you can recoup money via the following routes before the year end.

  • Increase your contributions to your pension plans or long-term retirement savings plans (kupot gemel) to ensure you are contributing the maximum (especially if you are self-employed). Contributions help to reduce your current tax liability and savings are invested in either tax-free or tax-deferred funds which can optimize the long-term growth of your investments.   Check with your insurance agent or financial professional about options that match your situation.
  • You still have time to make charitable donations (to tax approved charities) in 2020.  If you have taxable income, you can receive a reduction of 35% of the donation from your taxes paid (either through your employer or directly with Mas Hachnasa if you do it early enough).  And if you don’t manage to receive the refund this year, consider filing an annual tax return to recover a refund.  Speak to your accountant for more details. 
  • If you have retirement funds in the US, you normally need to ensure you are taking out at least your Required Minimum Distribution (RMD).  But there are special provisions this year that do not require you to take out the RMD although it still might be worthwhile for you personally to withdraw money from these accounts.  Coordinate with your accountant to keep your potential tax liability to a minimum.
  • Consider selling offsetting share positions (e.g. if you have paid taxes, sell shares that are priced at a loss, if you have sold shares at a gain, consider selling shares with gains) to limit your tax exposure this year.

When we have frank conversations with our children about finances, budgeting and savings there is a dual benefit. We reinforce for ourselves the correct financial lessons we need to internalize, and we simultaneously give our children the life skills they need to become financially empowered adults. And that is a financial win for any parent.

Is there a financial issue you would like us to cover? Email shelley@labinskycom.kinsta.cloud with your suggestions.