Now that the election is over, we are all adjusting to the idea of President Donald Trump. Even typing those words is an odd experience (as it would also have been to type “President Hillary Clinton”) …
We’ve had eight years of President Barack Obama, and however we feel about all of it, it’s always in our interests to approach the world as it really is. Some of us are quite happy, some of us are quite upset, but at least we know that it’s going to be interesting! (Although I am reminded of the old Chinese curse: “May you live in interesting times.”)
I’ll have more to say about what we might expect from a tax policy standpoint as things become a little more clear. In the meantime, we have the “lame duck” Congress to wait upon, who will make some last-minute adjustments to the laws, as usual! But regardless of how you feel, it’s my hope that (together) we can serve the world well … and that YOU will be in the strongest financial position possible, and with the most tax-efficient (and “tax-savings-est”) approach possible for the rest of this year.
That might only happen, however, if we have a conversation. Let’s make sure that your year-end is strong, and that you aren’t taken by surprise come tax time. Send me a note, or give us a call (410) 224-2600 if you want to do some year-end tax planning before things get too crazy with the holidays. And speaking of doing things well before they get too crazy, let’s talk about raising children, shall we? One of my favorite topics, specifically as it relates to instilling a great financial future…
“Real World” Personal Strategy Note
Financial Training Wheels for Teenagers
“The starting point of all achievement is desire.” -Napoleon Hill
Raising children is a white-knuckle roller coaster ride, and it sure isn’t easy. You can probably fill in the blanks with your own stories about how hard it is, and the particular challenges in our modern age. But still, those kids grow up, and most of them become (mostly) functional adults!
That said, I’ve seen so many otherwise loving and wise parents somehow forget to ready their children for the financial realities of adult life. Instead, they simply hand them credit cards, pack up their cars and head them off to school.
I’ll go out on a limb here, but I believe that it is this deficiency in financial education that has led, in part, to an adult population that largely spends beyond its means, engages in unsafe borrowing practices, and accumulates record amounts of debt. Still, if we decide to instruct our kids how to responsibly manage their money — much like we teach them how to read, tie their shoes, and ride bikes — then perhaps they might avoid financial catastrophe in their own adult lives.
And sure, that all sounds good in theory, but let’s get practical: how exactly do you go about instilling proper financial values into your adolescents?
1) Tackle the task as if you are once again teaching your kids to ride bikes. You first need to let them get comfortable on training wheels, and prepaid cards are the training wheels of personal finance. So co-sign for prepaid cards, load a certain amount of money onto them biweekly, and allow your children to spend freely. This will force them to learn how to budget, and since most prepaid cards allow online account management, you will be able to review their purchases with them.
By the way, I did some research, and these are some good choices for pre-paid cards for teenagers, etc.
American Express BLUEBIRD: https://www.bluebird.com/
Visa UPside: http://www.upsidevisa.com
American Express SERVE: https://www.americanexpress.com/serve/ (monthly fee, with some advantages)
2) Once you are confident that your kids have exhibited responsible prepaid card use for at least a year, you can graduate to monthly cash allowances. This progression, which is tantamount to taking one training wheel off their bikes, will provide them with greater financial independence (given that you cannot monitor their spending with cash). It will also more thoroughly test their responsibility, because the odds of losing money or exhausting it too quickly are heightened with a monthly cash allowance.
3) If your kids demonstrate the requisite discipline after a year of cash allowances, you can take the other training wheel off. Do so by co-signing for and opening checking accounts in their names and depositing slightly higher monthly amounts while requiring them to pay for more of their own expenses. With checking accounts, children will garner much needed experience writing checks and purchasing with debit cards. They’ll learn how to avoid overdrawing their accounts and bouncing checks — and if they can’t learn these lessons quickly enough, you can screw that training wheel back on and regress to cash spending. After all, when you took that last training wheel off, you didn’t let go of the bike completely! You still had a grip on the handlebars and were providing assistance as needed.
4) If your kids’ financial balance seems solid after 6-9 months, you can release the handlebars and either co-sign for student credit cards or give them small lines of credit as authorized users on your credit card accounts. Doing so will help teach them the principles of responsible credit use, such as spending within one’s means and paying bills in full each month. Remember though that you are simply taking your hands off to see if your kids can ride. If they wobble, catch them. If you don’t believe in using credit cards, then there are additional steps of “release” that might make sense, like ceasing allowances altogether, and encouraging them to pay for their own minor expenses from the proceeds of their own earnings.
This financial education progression will instill within your children various skill sets that will surely serve them well when they leave the nest. It’s important to employ such a practical approach because it lets kids learn and inevitably falter while the stakes are low. Additionally, you can ensure that your children know how to handle their money before becoming independent, providing yourself with the kind of peace of mind that is valuable to any parent.
So before sending your kids out into the world, make sure they are ready for the financial implications of that independence.
And once again, allow me to remind you that although we are VERY busy right now as we lead into the end of the year, we always have time for you. Give us a call at (410) 224-2600, and let’s get your 2016 tax return set up to save you the most that is legally and ethically possible.
Valerie McLaughlin, EA