Monday, April 7, 2008

10 Principles Parents Must Teach Their Children If They Ever Want to Get Rid of Them!

Since the release of my book, I have done numerous radio interviews across the US and Canada. I did an interview this morning in Ohio. Below is the topic of discussion from my interview this morning.

Question: How common it is for adult children to live at home?
Answer: Census figures indicate that more than 80 million so-called “empty nesters” now find themselves with at least one grown child living at home (Roberta Rand, “When Adult Children Move Back Home,” Focus on the Family). The common parental expectation of having an “empty nest” has given way to the reality of a “crowded nest.” A 2005 survey revealed that 25% of the college graduating class of 2006 expected to live at home after graduating (Sheila J. Curran, “The Adult-Child Comes Homes,” Duke University News, July 21, 2006).

Question: What do you think is the cause of the increase in the number of adult children living at home?
Answer: One reason is that often times parents give their children to much. Many parents make the mistake of provided damaging financial assistance to their children. Their motives are usually good. They want to help their children by paying for their college, and helping them get started in life or assist when a financial need rises. Unfortunately, the result is often opposite to the one desired. Instead of helping the children become self-sufficient, they become dependant. Instead of sparking initiative and discipline, the children become idle and indulgent. Instead of being achievement oriented, they become entitlement oriented. Instead of becoming grateful, they become demanding. “Children who always get what they want will want as long as they live” (Fred G. Gosman, Spoiled Rotten, (New York: Villard, 1992) p. 32). Research has shown that “in general, the more dollars adult children receive [from their parents] the fewer they accumulate, while those who are given fewer dollars accumulate more” (Thomas J. Stanley, William D. Danko, The Millionaire Next Door, (New York: Simon & Schuster, 1996) p. 142-143).

Another reason is that children are not learning to work. Since parents are providing financially for all their children’s needs, they no longer have to get summer jobs. In 2007, for the first time on record the majority of U.S. teenagers were not working or looking for work at the beginning of the summer. Only 49% of teens age 16 to 19 were working or looking for work in June 2007, a steep decline from the 68% of teens working or looking for work in June 1978 (Barbara Hagenbaugh, “More Than Half of Teens Forgo Summer Jobs,” USA Today, July 9, 2007).

Question: What do you suggest parents do when children ask for financial help?
Answer: Let me share with you a story. When I was starting one of my first businesses, one of my business partners and mentors was a multimillionaire. My business was growing but struggled to turn a profit. I continued to work hard but things were getting tougher and tougher for me financially. I went to my rich partner and asked for a small monthly salary or a loan to help me get by until the business was profitable. He declined to give me any assistance. I was frustrated and said, “You are making millions a year and I am struggling to stay alive. Please help me.” He looked at me and I could tell he wanted to help me. He was close to giving in to my plea when he replied, “If I take away your struggle, I will also take away your victory.” He then shared the following story:

“There was a young boy who came across a caterpillar hanging in a cocoon. He went to see the cocoon several times each day waiting for the butterfly to emerge. After a few days, the young boy began to see the cocoon move as the caterpillar struggled to emerge from the cocoon. The boy wanted to help the caterpillar so he ran home and got a pair of scissors. He returned and carefully cut open the cocoon and out fell a partially developed butterfly. This caterpillar would never fly as a butterfly. The young boy innocently killed the caterpillar he was trying to help.” At the time, I didn’t find this advice helpful, but today I am grateful to a wise partner and mentor who resisted the temptation to cut open my cocoon.

If you protect your children from struggle and responsibility, you will also prevent them from growing. If you help too much, you will make them helpless. Living off others is a form of bondage—for if you take from a person his responsibility to care for himself, you also take from him the opportunity to be free. Do not give your kids money, give them financial education. It costs a lot less and will develop the productive, self-sufficient children you desire.

Question: What are the 10 Financial Principles Parents Must Teach Their Children?
Answer: I have spent years studying the wealthy and have organized what they do into the Ten Habits of the Prosperous.

1. Clear Monitored Financial Goals
“If you put one hundred people in a room and ask them how many would like to be financially independent, all the hands will go up. If you then ask them how many have a personal financial statement detailing assets, liabilities, and net worth that is current in the last ninety days . . . ninety of those hundred people will not raise their hands. If you ask those remaining ten people how many have that financial statement laid out in a pro forma goals format for one, three, five, ten and twenty year periods, nine of the people will sit down. The one still standing will be a millionaire” (Charles A. Coonradt, The Game of Work, (Salt Lake City: Shadow Mountain, 1991) p. 16)

2. Delay Gratification
The prosperous have learned to resist the temptation to lose what matters most long-term for the short-term pleasure of something now.

3. Value Financial Independence
The prosperous enjoy the security and independence of owning their possessions more than social praise and status.

4. Live Below Income
For every $10 the prosperous make they spend $7. For every $10 dollars the poor make, they spend $13.

5. Save Money for Tomorrow
Many spend tomorrow’s resources for today’s pleasures. The financially independent save and invest today’s money for tomorrow.

6. Earn Interest
Interest is a very powerful tool that either builds or diminishes wealth. Those who understand interest earn it and those who don’t understand interest pay it.

7. Pay Themselves First
You can become financially independent simply by paying 10 percent of your income to savings and investments first, and then living on the rest.

8. Buy Wholesale
You can greatly decrease your expenses by learning how to buy items at wholesale and by always asking for a discount.

9. Create Gold-Laying Goose
The prosperous create a gold-egg-laying goose (assets with passive income) and then live on the eggs. Those who have reached the ranks of prosperity have learned that money is of a prolific generating nature.

10. Master of Money
A 17th Century Proverb states, “If money be not thy servant, it will be thy master.” The prosperous have their money work for them, while the poor work for money.

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