by David Bork
In “The Little Red Book of Family Business,“ I wrote the following:
Task of Parents: Raise responsible adults, who have high self-esteem and can function independently in this world.
Part of being able to “function independently in this world,“ is the ability to be responsible and accountable when it comes to managing money. This is not about income level for the concept applies no matter how much or how little money you have.
Money attitudes begin with the parents. You can hardly expect your children to learn to be responsible with money if you, yourself are frivolous with money. If you live life from the perspective of a throbbing blob of infantile protoplasm, always demanding that your wants and needs be satisfied by those around you, then that attitude will be transmitted to your children. If, on the other hand, you have an internal discipline in your life, a quiet demeanor that stresses being a responsible individual, joyful in celebrating the verities of life, then that is the attitude that will be absorbed by your children. Our task as parents is to raise children with the right values, including living a disciplined life. That means disciplined when it comes to managing their money.
Money is nice to have. It gives you choices. We get money by going to work and doing our jobs. Whether you own your business or are an employee in a business, you must do your job well. Thus, teaching a child to work, to carry a job to completion and know they have done the best they can do, is among the most important lessons of life. The ability to take a job and carry it through to successful completion brings satisfaction, enhances self-esteem and builds a base for the next opportunity. This is something we teach first by example, and secondly by requiring children to do things that are age appropriate. It can begin with the simple task of learning to pick up one’s toys and place them where they are stored. As a child gets older, the tasks become more complex, but the agenda is the same: learn to do a job completely.
If you have money, it becomes less important but if you don’t have it, it looms large. Money solves none of life’s important problems. It can’t make a sick baby well or bring back a deceased parent. In 2006 my daughter-in-law was diagnosed with breast cancer. The prognosis gave her a 2% chance of surviving the disease. She received the finest care that money could buy. Specialists from around the world were engaged to find a cure but to no avail. All the money that was spent to save her didn’t change the outcome. She died in 2009. It is an experience such as this that gives one new perspective on the role of money. The resources were available and were used in her behalf but money did not make any difference. This raises the question of how was it that the resources were available. The money had been saved.
The 3-Compartment Bank
My daughter has two children, one age 10 and the other age 5. Each receives an “age appropriate“ allowance. They have a three-compartment box. One compartment is labeled “Save,“ one labeled “Spend,“ the last labeled “Share.“ When they receive their allowance, a pre-determined percentage goes into each compartment. There are ongoing discussions of purpose of the money in each compartment. In this way, my granddaughters are learning the discipline of money from an early age. The money they receive is contingent on their completing their chores. They are learning multiple lessons from this process, including the discipline of completing tasks, budgeting the money to spend, saving which introduces the notion of deferred gratification and charity by allocation of money for charitable purposes.
My daughter is a professional photographer so her children have grown up with cameras in the house. Lila, the 10 year old has her own camera, albeit, a primitive model. In December of 2010 I made a contract with Lila. The “deal“ was this: On December 15, 2011, I would match whatever money she had saved during the year.
In May of 2011 she was in the camera shop with her mother and saw a camera more sophisticated than her primitive one. She said she liked it. Her mother said, “Well, you have enough money in your account and you can buy it if you wish.“ Lila thought for a minute and then said, “I think I will wait until after Grampa has matched the money in my account.“ That child is no financial dummy! Lila learned a lesson that will last the rest of her life!
Because you have the money in your account does not mean that it needs to be spent. Learning to live within a budget, to wait for a purchase is, in itself, a useful lesson in money management.
Learning Skills as a Vehicle to Learn about Money
It is important for children to learn the relationship between effort and reward. Those who do not learn this lesson will have money problems at some point in life, and say there is never enough.
When Sarah, my daughter, was in her teens she received a clothing allowance. It was hers to spend as she wished. As is often the case with teenagers, she wanted more. I made the following offer: I would pay for 2/3 of a sewing machine and all the sewing lessons she wanted to take. (She had to pay for 1/3 of the sewing machine.) Then, for every 2 garments she made herself, with material purchased from her clothing allowance, I would provide material for the 3rd garment. This was a real incentive and it worked. Sarah really liked sewing and took countless lessons. She made many garments and was very creative in that process. She made a beautiful dress for the prom and took delight in telling others that she had made it. She can make and has made garments that you, the reader, are wearing, a testimony to the skill she developed.
This process of incentivizing, connected with skill development brought lessons about money, built skills that she uses today as the mother of two, enhanced her confidence and self-esteem and kept her Dad from shelling out more money, just because she wanted more clothing. It was a Win-Win for all. A further benefit is that now she is teaching her children to make things from re-cycled materials rather than spend their money. The lessons learned when she was a teenager are compounding into the next generation.
Limits and Stories
Setting limits in all matters, including money, is an important parental responsibility.
There are certain behaviors that are acceptable and some that are unacceptable. Violation of limits must carry consequences. The fact is that all of life carries consequences. As we go through life, we make decisions. Often it takes years to play out the consequences of those decisions. I suggest you think of a financial decision you made that had far reaching consequences and took years to conclude, then discuss it with your children. It may be one of the most important stories you ever tell your children.
Some readers might be wondering how do these stories relate to family business. One of the most important aspects of any business is money management. I have schooled entire families to “Watch The Money!“ Every business needs “dry powder,“ cash reserves. In the early days of building a business it is hard to build a cash reserve, but it you are successful as a business, there will come a time when building these reserves is possible. As a business owner and a parent, it is important to talk about this concept with your children. Discuss how you approach the management of your cash reserves so you have funds to re-invest in your business.
This discussion can lead to what you pay for raw materials, salaries to employees, margins planned in the sale of finished products. This falls into the category of learning to talk about money and begin to see that money is a tool that provides leverage in business and life. The directions you can go in money conversations with your children are unlimited. It all applies and harkens back to the lessons of life that parents must teach their children.
In this brief column it is not possible to unfold all the principles of teaching children about money. My intent is to surface some of the issues related to money, identify a few principles and direct the reader to resources. If you have a story about teaching your children about money, I would like to hear it.
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