spending

The 1 Piece of Financial Advice Growing Families Need to Heed

There are plenty of tips for how to save, but far fewer for how not to spend. That’s where a family values plan comes into play that will make it easier to say “no” when the pressure builds to keep up with the Joneses.

Some of the best financial advice I ever received was delivered at a funeral.

The son of a client who’d passed away stood up and told a moving story about a childhood summer vacation. His parents couldn’t afford the trips to Disney World that many of his friends had planned. So instead they put the kids in the car and drove for a few hours until they ended up in nearby Toledo, Ohio, and stumbled across a modest hotel with a pool, where they spent the weekend playing.

Decades later, that time with his family remained one of the son’s most vivid and treasured memories. What could have been a $5,000 trip became a $500 trip and was no less memorable or special because of it.

Golden Financial Advice for Families That Often Gets Overlooked

Financial tips for growing families are everywhere online and follow a pretty standard list: Max out your 401(k); make sure you have life insurance and an up-to-date living will; contribute to a 529 college savings plan, etc. That’s for good reason: Those are all critical financial planning strategies that protect your family and your financial future. 

But one equally important piece of advice that you don’t hear so often is the need for families to align their financial values and to regularly communicate to stay on track.

Family conversations about financial goals and values often go unspoken until they are forced by a major life event. It’s much better for it to be a continuous discussion that helps the family stay focused on what's important to them over the long term.

Quit Trying to Be So Perfect

In today’s society, the pressure to keep your lifestyle and spending in line with your peers is enormous. And if you think it’s bad now, just wait until you have kids. When children come along, we all develop a powerful drive to give them the best. But what is “the best,” and can it really be bought? 

As a parent, life is going to present you with a thousand opportunities to spend money on something you think your kid needs. Using your family’s values and long-term financial goals as a guide, you’ll be better equipped to sometimes say no or settle for less than “the best.”

The pressure to keep up is constantly being reinforced in the media and by other parents. It’s easy to feel like you’re a bad parent if you don’t have your kid in the best ZIP code, the best summer camps, travel sports programs or in Mexico every spring break like their friends.

This competitive pressure only seems to be getting worse. Putting aside the psychological stress this can cause for kids, it’s also taking a financial toll. A recent survey found that 62% of U.S. parents who pay for extracurricular activities for their kids have gone into debt for all those soccer, dance, and piano lessons. One family in Colorado admitted to dropping an eye-watering $60,000-$100,000 a year on their daughter’s ice-skating passion, even though she wants to go to medical school.

Keep Everything in Perspective

I’m not saying it’s never OK to spend on these types of activities or to give children other costly experiences like travel. The important thing is to ensure you’re making these decisions for the right reasons rather than out of fear, and that you’re doing so without jeopardizing long-term financial goals like retirement and college savings.

As much as we want to give our kids wonderful memories and opportunities, the reality is that we don’t all have the same income or wealth to do so. Each family is going to have their own values and goals and widely varying financial means to meet them, so you should follow your own path rather than trying to emulate others.

The Toledo anecdote teaches us that children can have experiences in their neighborhood or local state park that are every bit as rich as vacations to exotic destinations. And they may well end up treasuring them more than those times when you splashed out for Disney World or the Caribbean.

About the Author

Jaime Eckels, CFP

Relationship Manager, Plante Moran Financial Advisors

Jaime Eckels, CFP, has been helping clients achieve their financial goals for 20 years and specializes in developing savings behaviors, implementing debt-reduction strategies, analyzing client cash flows, defining investment policy, determining portfolio allocations, minimizing income taxes and maximizing client balance sheets.

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