“I want my kids to have it better than I did” is a common sentiment among my clients as we work through the financial planning process. The desire to save children from the struggles or obstacles they had to face or provide children with the best possible opportunities is strong. Many of these same clients go on to say, “but I don’t want to ruin their drive and ambition by giving too much.” While each family is unique in their approach to personal finance, and every parent will ultimately decide how they want to provide opportunities for their children, it can be helpful and character-building to find the right balance in partnering with that child for a better long-term outcome.
The key is to ensure that each decision is weighed with the awareness that growth in character and opportunities can be aligned. When purchasing a first car, for example, alignment could come in the form of “I will match whatever you put towards a car” and avoid the extremes of either buying the car outright or making them do it all on their own. Certainly, this alignment could come in much smaller forms than a car, but the benefit is in the alignment that provides more options than they would have on their own and to share in the decision-making journey.
Another strategy that fits this mold for young adults is to have parents gift money to their children for a Roth IRA contribution. Often workers early on in their careers do not have the ability to save outside of monthly expenses and therefore forfeit their most valuable tool – time for compound growth. By gifting them the money to make a Roth IRA contribution, parents are providing the opportunity to compound tax-free earnings for 40+ years! The young worker contributes to the process by the fact they have to have earned income to be eligible to make a Roth contribution, and the gift, once inside the Roth, is not accessible for monthly cash flow, thereby reinforcing the skills of delayed gratification. It creates alignment in saving for the future, working to cover their own immediate needs, and provides an opportunity that will be incredibly valuable down the road.
The desire for our kids to stand on our shoulders is a worthy cause. One powerful way to ensure our children could have it better than we did, is to intentionally find alignment in financially resourcing and mentally equipping them in these teachable moments.
Written by author: Brad Nicholson | Financial Advisor, President
*The foregoing content reflects the opinions of Van Hulzen Asset Management DBA "Van Hulzen Financial Advisors" and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.