I’m convinced that financial counseling must come from the parent. If you’re not indoctrinating your offspring into sound habits of thrift and discernment, there is a likelihood they will blunder through life with no sense of monetary values. That’s a recipe for personal disaster. I’d like to offer the following suggestions on how to instill a sense of fiscal responsibility in your children.

1. First and foremost, start early. There is no more accurate truth than the ancient adage: As the twig is bent, so grows the tree. As soon as your progeny develop an awareness of what is going on around them, they’re entitled to instruction and guidance on the realities of the financial world. Admittedly, the approach to your 4-year-old will be far different than to your teen-ager. Nonetheless, if properly presented, both will acquire skills that will accompany them over a lifetime.

2. Mean what you say. Whether or not you believe it, your children really pay attention to what you say and do. As the first authority that normally appears, a parent becomes a model on which the child fixates. It’s important to realize, however, that your counsel must be consistent for the lessons to be learned. If messages are contradictory, they will be received as mixed signals. If, for example, parents proclaim the importance of living within their financial means while simultaneously indebting themselves through purchases they cannot afford, it will not go undetected by the children nor induce them to pursue habits of thrift. The only way that sound financial values can be transmitted from one generation to the next is by a systematic and continuous program that reinforces these values. Only through precept and example will sound habits be engrained.

3. Don’t encourage unattainable goals. Well-meaning parents, who urge their children to aim for the stars while ignoring reality, do them no service. One typical example is the encouragement given to attend a prestigious university when family funds are unavailable. Over the past several years I’ve fielded many a letter from these children, themselves well into parenthood and overburdened with tens of thousands of dollars in unpaid student loans. In most cases, the grandiose plans envisioned never came to pass. Whatever added luster a high-priced school is designed to impart often proves to be illusory. Reasonably priced educational institutions are available and every bit as suitable. The point I want to stress is that realistic and attainable goals, taking into consideration the inherent abilities and limitations of each offspring, must be the basis on which guidance is given. Despite the prevalent attitude in modern society that everyone is endowed to achieve at any level, the wise parent will recognize reality and seek to counsel the child accordingly.

4. Don’t try to direct your child’s discretionary spending. If a child is to learn about money, he or she must sense some meaningful connection to it. Though it’s the parents’ responsibility to advise their offspring on sensible spending and saving, they must not dictate how the youths handle their earnings. The decision on how money received is to be spent—or horded, if that’s the choice—is that of the recipient. Most importantly, don’t habitually come to the rescue. When mistakes are made, the repercussions are the most valuable part of the learning process. Managing finances is a lifelong challenge, and the sooner experienced, the better.

5. Don’t fight against human nature. Over time I’ve seen a lot of strange behavior that ignored human nature. One of the more bizarre instances concerned an indolent young woman, who over many years repeatedly received instruction from her wealthy father on how to balance her checkbook. She habitually issued checks whenever she chose. When the account balance fell below zero, the bank phoned her father who deposited more money in the account. Somehow her father never understood that his instruction sessions ignored human nature; the checkbook balance held no significance for her. What’s the purpose of this observation? It’s to stress the importance of parents’ awareness of what is important to their offspring. Human nature dictates that all actions actually have meaning.

About the Author:
AL JACOBS has been a professional investor for nearly four decades. His business experience ranges from real estate, mortgage, and securities investment to appraisal, civil engineering, and the operation of a private trust company. In addition to managing his investments on a day-to-day basis, he is a featured financial columnist for both online and print publications. He is the author of Nobody’s Fool: A Skeptic’s Guide to Prosperity. You may subscribe to his financial Newsletter, "On the Money Trail," at no cost or obligation, by visiting www.onthemoneytrail.com.