In the past, I’ve strongly advocated for families to introduce their teenagers to financial reality as early as possible. I know that in my own case, I went off to college with almost no idea of how to manage my money and it really showed in the spending decisions I made over the next ten years of my life.

Over the past decade, I’ve had the chance to intimately watch other families raise their children through the teenage years with lots of success and some failure. I’ve been impressed with some of the young people that are the core of Generation Y coming of age. Two in particular, my niece and my first cousin, are the kind of people that are a big net benefit to the world, and I would be incredibly proud if my own children turned out as well as they have.

At the same time, though, I’ve seen many tweens and teenagers spending money with reckless abandon, spending hundreds of dollars on completely unnecessary things and acting repeatedly as though money has no consequences at all. These people, I’m afraid, are headed down the same painful path that I went down.

When my children approach their teen years, what can I specifically do to teach my children the value of managing their money? This is a topic that’s left me thinking for a long time and I’ve been jotting down ideas and findings all the time. Today (finally), I had a chance to read through quite a few of these things and I was able to pull out several strong tactics that seem to work together to teach teenagers the value of managing money.

Start young. You’re better off starting too young than you are starting too old. Introduce an allowance as early as possible. Encourage their entrepreneurial behavior early. Introduce them to basic budgeting early on, too. You’re better off starting before they can fully understand all of the meaning than later on when their ideas for what’s normal have already been set, because it will take far more work to undo bad behaviors.

Don’t tie a basic allowance to specific chores. A basic, small allowance should be given without strings attached. It’s not a tool to leverage for good behavior, it’s a tool to teach basic money management. There should be certain behaviors expected in the home, but the allowance should not be a bludgeoning tool to force those behaviors.

Offer extra allowance in exchange for specific extra tasks. If you have extra tasks that go above and beyond normal household duties, you should offer a separate payment to your child in exchange for the task. Allow them (or even encouraged them) to negotiate for the exact amount so that they can learn the art of negotiation.

Make basic budgeting part of the equation from day one. I’m a huge fan of the Money Savvy Pig for this purpose. A child’s budget should be very simple, especially at first, and that’s exactly what the Pig helps with. It just splits a child’s allowance into four pieces – spending (they can spend it on whatever they want), saving (saving for a bigger goal), donating (giving to some cause), and investing (learning how to invest money). This forms a perfect simple budget for children. Later on, you can work on more complex budgets with them, with multiple savings goals and so on, but this type of thing forms the backbone in their mind.

Open bank accounts when the “investing” portion grows large. When they’ve built up quite a bit in the “investing” portion of their budget, take them to the local bank and open a savings account for them. Have them deposit their money. Then, when there’s an interest statement, show them the interest that’s been earned. As they grow older, you can talk about other investments with them and allow them to try these investments (stocks and so on). Set a very long term goal for their “investments,” such as college or a house down payment (seriously) so that they can begin to get a taste for the long term, plus it allows you to differentiate between short-term savings and long-term investments.

As their money grows, move to a checking account. Migrate toward allowing them to manage their entire budget themselves, incorporating saving, spending, donating, and investing to their own desires. One big step in this direction is their own checking account with a debit card – a great tool for a pre-teen. Make the card only able to access the checking account.

Give them a credit card when they’re teens. Gulp. Many parents avoid this because it seems like a recipe for disaster, but it actually serves a very important purpose. By giving them a low-limit credit card while they’re in your home, they can learn about how to use a credit card – and, likely, the dangers of getting into debt with them – while there’s still a safety net. Ideally, you want them to get into a bit of debt with it so that they can see the pain of interest.

Show them your monthly budget. Seriously. Show them how much you earn in a given month, then how that money breaks down into mortgage payments, car payments, electric bills, food, and so on. This is a firm taste of the real adult world, something that teenagers crave. Let them see the reality of adulthood and how expensive it is. Talk about the choices that you have to make along the way.

Work on distinguishing between wants and needs. This ties in perfectly with showing your children your monthly budget. Some of the items are needs – your housing, your electricity. Others are wants – entertainment. Others are somewhere in the middle – food spending. The better you’re able to distinguish between needs and wants – and to control those wants – the more likely you are to teach them to control their own wants. That’s one of the biggest keys to adult personal finance success.

This is my gameplan for raising my children to better manage their money. Hopefully, you can pull out a nugget or two for your own children or grandchildren.

Margaret writes in:

I have a twenty four year old daughter who is still living at home. She went away to college, but moved back in after college while looking for a job. She’s had a good job now for two years, but has made no move at all to move out. She does give me money for groceries and for bills, but she spends the rest of her money as soon as she gets it on clothes and cell phones and laptops.

I think it’s time for her to move out, but I know that if I kicked her out, she would have nothing to fall back on. What credit she has is pretty poor.

So I’m stuck. What do you suggest?

I suggest putting the impetus back on your daughter. This is how I would handle the situation.

Here’s what I would do. I’d sit down and have a heart to heart with her. Explain, quite simply, that you’ve been happy to give her a place to live while she gets back on her feet, but now it’s time to move on. Most of the time, children in this situation will do everything they can to delay moving out, so you’ll hear a lot of excuses about how she doesn’t have enough money, she’s not ready, and so forth.

So change the rules a bit. Offer to let her stay there for one more month if she opens up a savings account. At the end of each month, as long as the balance in that account is $500 (or $1,000) higher than it was the month before, she can stay for another month. Otherwise, it’s time for her to go.

This little move achieves both your goals and her goals. Your goal is to have your daughter become responsible for her own money to the point where she can easily move out of your home, a goal accomplished by her having a wad of money in the bank. Her goal is to prolong the situation – and you’ve given her a route to do that.

Eventually, what will happen is that she’ll begin to realize the money she’s saved up can be enough to help her buy nice living quarters of her own without Mom constantly there overseeing things. That’s a big difference from the state she’s in now, where the idea of moving out is far in the nebulous future. When that option becomes tangible and real, she’ll want to move out.

What if she says that this is impossible? Simply tell her you’d be happy to help her figure out how to manage it. Point out that her income significantly exceeds the amount you expect her to save. If it results in a fight, stick to your guns and remember that she’s actively choosing not to progress forward. That’s much different than merely spinning her wheels, which is what was happening before. If that’s the situation, you have to cut her free and let her make mistakes on her own.

What if she’s on board strongly with the idea? Encourage her. Give her a copy of the book Your Money or Your Life as food for thought. Offer to counsel her in any way that she wants, but don’t push – quite often, the path to learning how to manage one’s own resources is a solitary one. You might even end up pointing her towards The Simple Dollar or other such websites for other ideas.

Remember, the end goal here isn’t to merely extract your daughter from your home, but to make sure that she’s self-sufficient enough that this won’t be a continuous problem in the future. Give her all you can to make her self-sufficient – if she chooses not to, you’ve done all you can. That’s what good parenting is, in the end – making sure your children have the tools to succeed on their own and that they know how to use those tools.

Good luck, Margaret.

A young reader writes in:

I’m a high school senior and I’m going to college next fall. When I go to college, I want to be completely independent, paying my own bills. My parents insist that this is financial suicide and that they should support me through college. What do you think is the right way to go?

Shortly after my eighteenth birthday, I left my parents’ house and went to college. When I left, there was a pretty implicit understanding that I would not be moving back in with them in the future. Sure, while I was a student, I could spend between-semester breaks living there and I could live there in short spurts after college if necessary to facilitate moving on to somewhere else, but my parents’ home was no longer my own. It was up to me to find my own way in the world.

This flies squarely in the face of many parenting trends today in which children often live with their parents throughout college and afterwards, sometimes for many years. The reasons are many, usually revolving around the child’s inability to earn a sufficient income to be financially independent.

Even when children reach a point of “independence,” meaning they don’t live at home, many parents still provide some sort of regular financial support, just to help the children make ends meet.

My belief is that I learned much more valuable lessons by having to make it in the real world than I ever would have back under my parents’ roof. Yes, even if that means a very low standard of living during one’s twenties if necessary.

I’m not saying that parents shouldn’t help if a child completely loses everything. However, there’s a big difference between a helping hand and long term support of a lifestyle.

Short term help in a problematic situation is great – it’s the type of thing that strong relationships are made of. The ability to rely on someone else for a short while when life has knocked your feet out from under you is a tremendous boon and I absolutely do not begrudge parents for helping out in those situations.

The problem comes when that help progresses into expectation and reliance. Any situation in which an individual is unable to be independent and is reliant on someone else is dangerous to both parties. It hurts the parent by taking money away from their future plans, ensuring that they’ll be in the workplace longer and will have fewer assets to rely on late in life. It hurts the child by denying them the skills they need to survive in a world that will eventually not include the parents. Plus, it extends the inevitable ending of support to a later date when it’s quite likely to be much more uncomfortable for both parties.

Yes, financial support of one’s children in adulthood makes life “easier” for them in the short term, but it makes life harder for them in the long term. Such support stunts the budgeting and money management skills that they’ll need to survive when they actually do become independent. It also encourages the establishment of a pattern of spending that exceeds their real income.

The real danger, though, is how it impacts you. The money given to your children when they should be independent is money that’s not going to support your retirement. You’ll have to work longer – and if you’re unable to, you’re much more likely to become a late-life burden to your children than you would be if you invested in your retirement now.

I’ve witnessed this phenomenon with my own eyes. My grandmother gave tons of support to her children, even in their adulthood, and during her final years, she barely had enough money to keep the power on and wound up having to fully support one of her children. If she had completely cut the cord when the children entered adulthood, she would have been able to enjoy a financially comfortable retirement – instead, her final years were fraught with financial and personal worry.

My conclusion, if you haven’t figured it out, is that delaying your children’s independence for longer than necessary is detrimental to both parties and should be avoided. If you’re still relying on your parents – or if you’re a parent still providing support to a child that should otherwise be standing on their own two feet – now’s the time to break that cycle. It’s the only way both of you can thrive and grow freely.

To the young lady who wrote in initially, tell your parents to take that support money and put it towards their retirement by bumping up their 401(k) contributions by 2 or 3% a year. Suggest to them that this retirement savings is actually a benefit to you because it reduces the chances that they’ll be a financial burden to you later in life while also giving you the opportunity now to figure out how the world works.

Over the last week or so, my wife and I have been discussing when to start giving an allowance to our oldest child, Joe, who is almost four years old (long-time readers may recall that Joe was still a baby when The Simple Dollar started… where does the time go?). This conversation was spurred on by my recent reading of Raising Financially Fit Kids, along with a small pile of articles and research on the topic.

Here’s the plan we’ve decided on.

First, we’re going to begin his allowance on his fourth birthday. He’s reached a level of intellectual maturity that he now clearly understands that money is exchanged for goods and services. He also often requests items of various kinds at the store – and is told “no” virtually all of the time. Yet, he does see that Mom and Dad occasionally buy unnecessary items (like a book at the bookstore) and is intuitive enough to ask why Mom gets a book while he does not. His allowance allows him to make some basic money decisions for himself.

Second, his basic allowance will be very small. We don’t intend to throw a large amount at him. We’ve decided on an initial allowance of just $2 a week – and he won’t be allowed to even spend all of that in a given week (as I’ll explain below). This allowance isn’t intended to finance exorbitant spending on unnecessary things – instead, it’s a way to teach simple money management to a small child in small amounts.

Third, the allowance will come in three parts – for now. One part will be pure spending money – he can do whatever he wants with it. A second part will be saving for a specific goal, which we’ll let him identify. We’ll keep this in a jar on the refrigerator with a picture of the goal on the jar (and the price). A third part will be for giving – we’ll let this build up for a bit, then tell him about some local charities that he can give the money to to help their cause. We’ll give him his allowance in quarters, putting them one at a time into each group in the order above until they run out. So, at the start, he’ll get three quarters a week to spend, three quarters a week to save for a goal, and two quarters to give to others. The idea here is to teach some goal setting and also to teach the value of giving to others in need.

Fourth, his allowance will grow slowly in proportion to his age. Each year, we’ll increase the allowance by fifty cents. So, when he’s five, he’ll get $2.50. When he’s ten, he’ll get $5. As always, the allowance will be given in quarters and dollars so it can be divided evenly. So, next year, he’ll get a dollar (four quarters) to spend as he chooses, three quarters to save towards a goal, and three quarters to give to a charity. After that, a dollar goes into each grouping.

Fifth, his allowance will be “automatic” – not based on any specific behavior. There are some things that he’s expected to do at our house – pick up his toys, scrape his plate after meals and put it in the dishwasher, and so on. Those won’t be tied to his allowance – if he refuses to do them, his allowance won’t be the source of discipline (”time out” works really well for that, actually). The goal is to teach money management, not to use it as a tool for discipline.

Sixth, we will offer him optional extra chores to do to earn a little more. For example, we’ll give him a large basket and tell him if he fills it up with leaves from the yard, we’ll give him a quarter in each jar. If he wants to do it, he can – otherwise, Dad will get out the rake. Again, the goal here isn’t to get cheap labor (I could clear the leaves WAY faster myself), but to teach him that if you work, you earn financial rewards for it – which also must be budgeted.

Seventh, when he’s older, we’ll introduce an “investing” jar, too. Perhaps when he’s six, we’ll introduce a fourth “jar” into our system, splitting the allowance money into four equal parts. This final “jar” includes money to be invested for the future – not to be touched until he’s done with his schooling. Why so long term? With such a long timeframe, he’ll have adequate time to see how investing in stocks works, how investing in bonds works, how investing in cash works, and so on. Right now, he’s simply not ready for this and wouldn’t see the connection, but we think he might begin to understand it when he’s a bit older.

Eighth, all “gift money” will be split along these same lines. If he gets $5 from Grandma on his fourth birthday, $1.75 can be spent right now, $1.75 is saved for a big goal, and $1.50 is given to a good cause. In other words, gifted money is treated the same as allowance money.

Finally, he’s freely allowed to put “free spending” money into other jars if he so chooses – with a small bonus. This will allow him to push towards a big goal. What’s the small bonus, you ask? If he dumps all of his allowance that week into the “saving for a goal” jar, I’ll toss in an extra quarter to reward good saving. It’s also a hedge for our own sanity – I’d rather he use his money for a few more expensive toys than lots of $0.50 items that clutter the house.

That’s our allowance plan for Joe and, if it works well, we’ll replicate it in a couple years with our daughter. Any thoughts or comments?

Every other Sunday, The Simple Dollar reviews a personal finance book.

It should come as no surprise to long-time readers of The Simple Dollar that I’m deeply passionate about raising my children with a strong sense of independence, self-motivation, and a strong ability to manage their own money in a sensible way. In fact, I’ve read and reviewed several books on this very topic; among them, Young Bucks, The First National Bank of Dad, and Make Your Kid a Millionaire.

Raising Financially Fit Kids by Joline Godfrey is perhaps the most thorough book on teaching personal finance to children that I’ve yet come across, as well as the best designed. It’s glossy, loaded with wonderful pictures of bright-eyed children, and organized in a thoughtful fashion.

But is it a really helpful guide to teaching children how to properly manage money? Let’s dig in and find out!

1 – From Safety Nets to Self-Sufficiency
Every kid is different. Some kids are naturally spenders – they can’t wait to spend every dollar they get. Others are hoarders – they carefully preserve every dime they see. Some kids are budding entrepreneurs who love to get out there and develop plans for making money. There are countless flavors – and countless different behaviors.

So how can you offer good financial education to all of these different types of children? All of these types are rewarded by teaching them how money flows – the benefits of saving, the benefits of spending, the benefits of investing, and the benefits of giving. In other words, don’t simply force them to go against their natural behaviors, but don’t just go along with them either. Instead, teach them balance – the balance between spending, saving, investing, and giving that’s an intrinsic part of adult life.

2 – Outwitting the Money Monsters
Time. Peers. Media and marketing. Magical thinking. These are all enemies of good money management for children (and for many adults, too). Time is a factor because in many modern households, both parents are working, the kids are in tons of activities, and there’s little time to spare. Peers are a factor because of peer pressure. Media and marketing constantly influence kids to want things that they would have never considered before. Magical thinking teaches them that plastic is free money, just like the tooth fairy.

The best solutions for each of these areas is the same: quality time spent with your kids (not just time running from activity to activity or parked in front of the television) and open and honest discussions about everything (so they feel okay asking you questions, mostly to take away unnecessary magical thinking).

The middle portion of the book focuses on specific issues for various age ranges of children. Godfrey argues that there are ten basic money skills that should be worked on (with different tactics depending on age) throughout a child’s life:

1. How to save
2. How to keep track of money
3. How to get paid what you are worth
4. How to spend wisely
5. How to talk about money
6. How to live on a budget
7. How to invest
8. How to exercise the entrepreneurial spirit
9. How to handle credit
10. How to use money to change the world

The meat and bones of this are laid out in four very nice fold-out tables, one for each of the four age ranges discussed in the following four chapters. It can almost serve as a checklist of sorts.

3 – Stage One: Ages 5-8: I’m Just a Kid
In the early years, the focus really should be on a basic introduction of the ten money skills above (so that the basics of the idea are clear to the kids) and positive reinforcement of good choices (not punishment of bad ones).

Godfrey encourages having a weekly allowance that’s given without any sort of requirement and that it should be split among spending, saving, and giving. In addition, Godfrey encourages developing a list of “bonus chores” that will stretch your child and really make them work, but earn them an additional amount (which is also split among the three areas). Another important part: talk about all shopping trips in detail. Explain to your child why you’re buying what you do and also talk about their spending choices and whether it’s a good idea to spend their spending money on bubble gum.

4 – Stage Two: Ages 9-12: Encouraging Passions
At this stage, the first flickers of independence are starting to appear and you should facilitate it. Give the child more control over their saving and spending and charity decisions. Encourage them to take on larger entrepreneurial projects and give them really big tasks for earning extra money. The more projects they start on their own, the better.

The real focus here is in making sure your child gains self-confidence and a realization that they’re doing it themselves and that they’re doing it right. You can do this by letting them make decisions, letting them follow through, and complimenting their efforts.

5 – Stage Three: Ages 13-15: Breaking Away
This is the perfect age to have your child get a simple job on their own (or perhaps kick an entrepreneurial project into high gear). Hit your own social network to find good job opportunities for your child and suggest them.

This is also a perfect time frame to have them do “dollar tracking.” In other words, have them keep careful track of every penny they spend over a period of time, then summarize and evaluate all of that information so they can clearly see where their spending goes. You should do the same at the same time so that they can see how an adult spends money – and both of you should strive to do it with full honesty.

6 – Stage Four: Ages 16-18: Standing Tall
This is an appropriate stage to really begin involving your child in your real financial situation. They’re just about to take the leap into their full independence, so this is the time to show them how you manage things. Show them your financial state. Review with them how you pay bills.

Another important way to help them take flight on their own is to let them start being in charge of important financial tasks. THEY should be managing their college applications. THEY should do their own FAFSA.

7 – Money and Gender
Boys and girls are different – does that mean you should be teaching them money lessons in a different fashion? In so many words, Godfrey basically says “no.”

The lessons that you should teach both your boys and your girls is that they can do this. They can succeed on their own merits and they can make their own rules. There are countless male and female success stories out there – people rising from humble backgrounds, people doing amazing things. Your children can do it, too.

8 – Raising Rich Kids
How can you do these things if you’re affluent? The most important thing is to discuss this forwards and backwards – if your children are affluent, it’s likely they’re aware of their lucky situation. Make it clear that they have been given a great opportunity to start, but that once they’re on their own, it’s up to them to make of themselves whatever they will. Point out that the kids who come from nothing are going to be hungry and they’re often going to work very hard to get ahead – and they’ll have to compete with those kids.

Finally, don’t helicopter kids into middle adulthood. Allow them to be independent as early as possible, making their own mistakes and mis-steps along the way. Offer a helping hand, but if you pave the road for them, they’ll never learn the self-reliance they need to make it in a world without you.

9 – Raising Young Philanthropists
How can you show your children the value of sharing what they have with the world? The best way to do this is to be an example yourself, all the way along. Be involved in charities. Give your time and your talents to causes you believe in and encourage them, as early as possible, to do the same.

As your child begins to develop a social conscience of their own, encourage them to follow up on that conscience and do what you can to get them involved in a charity. Few things will help a child grow more than a lot of hours invested in a charity that’s deeply meaningful to them.

10 – Yikes! My Kid Won’t Leave Home! Now What?
To put it simply, don’t. You shouldn’t provide a nonstop roof over their heads (although short term help is fine). Nor should you provide a constant subsidy for your kids.

Why not? Doing that discourages their independence. Free money means that they don’t have to put any effort forth to get the things they want in life, which teaches all the wrong lessons.

It’s okay to help on occasion, but never help in an open-ended fashion. That results in nothing positive with an adult child.

Is Raising Financially Fit Kids Worth Reading?
Let me put it this way: Raising Financially Fit Kids is the best book on financial education of children that I’ve yet read and I intend to give it a permanent place on my bookshelf soon (my review copy was checked out of the library).

What’s so good about it? Virtually every page is loaded with great specific ideas for teaching money concepts to children. More importantly, a great deal of thought was put into the layout of this information, making it very accessible and easy to read and find.

Add it all together and you’ve got a stellar book, one I look forward to utilizing as my kids grow older. In terms of practical use, it’s far and away the best book I’ve found on kids and money.

For many people, junk food is a serious temptation. It helps them feel a sense of comfort. It provides a quick burst of flavor. It helps them de-stress. It provides an energy boost at an opportune moment. In the short term, it’s a big gain.

In the long term, though, it’s a different story. It causes weight gain and other health problems. It can cause a negative body image and make people feel worse about themselves. Those effects cause an overall negative emotional sense, so they turn to the things that comfort them.

Many things in modern life follow that same structure: they’re nice in the short term, but incredibly painful in the long term. Credit card debt – you get what you want in the short term, but you wind up paying a ton of debt over the long term. Diapers – we use the convenient disposables for now, but later we lament filling up landfills with things that will take many, many years to biodegrade. A home mortgage – you get to move into a home, but you make huge interest payments for many years.

Again and again, humans choose to value the short term over the long term. We do it with countless daily actions each day, from the food we eat to the activities we choose to fill our time with. Our focus is on the now, not on the five years from now.

This is natural, though. Throughout the course of human history, humans have spent most of their time living a true hand-to-mouth existence. Our hunter-gatherer ancestors constantly benefitted by keeping their eyes on the immediate prize – the food in their stomach today and this winter, nothing else. Agriculture took many, many millennia to take off, and it’s easy to see why – you have to see some real success at agriculture to see it beating the benefits of picking a bunch of wild berries.

Today, though, we live in a different world. Food will be available tomorrow, but many of us still behave as though it might not be. There are thousands of apartments and rentals in most areas, but we buy a home because it fits our needs better – but our biggest “need” is simply a false sense of stability.

I do this myself all the time.

My focus is always on the short term with The Simple Dollar. I obsess mostly over the posts for the next week or so, without often worrying about anything beyond that. On the occasions when I do focus on the long term (like writing books, writing and preparing downloadables, working on projects with other bloggers, and so on), I usually find that over a longer period, I’m glad I did it.

I often try to put off meals that take a long time to prepare because, in the short term, I don’t want to make that time investment. Over the long haul, though, the great meals I enjoy and remember are often the ones I spend a long time on – the pasta made from scratch, the coq au vin cooked slowly and carefully, and so on.

Some days, I do not want to go exercise at all. It seems like a short term gain to just relax and kick back. I could read a book, after all, instead of going out there, getting out of breath, getting all sweaty, and having my legs feel like lead. If I don’t do it regularly, though, my daily life goes down in quality. I have less energy. I have less motivation to do … well, anything. I gain weight and my body image goes downhill, as does my appearance to others.

Sometimes I’m tempted to go the easy route when with my kids. Why don’t we just play in the backyard instead of loading up and going to a state park? It’s rainy – let’s just watch a movie instead of getting out all of the art supplies. In five years, though, what will have built a stronger bond with my kids? Time spent doing something adventurous and creative with their father, or time spent sitting on the couch or playing on the backyard slide?

In each case, the simple choice in the short term is far from the most enjoyable choice in the long term. However, the pain in the long term from the “easy” choice is far, far worse than the short term disadvantage.

Here’s an interesting exercise to highlight how much the phenomenon impacts your life. Spend a day thinking about what this activity will be worth to you in five years. If you eat that junk food, will the impact on you be positive or negative five years down the road? What about if you eat spinach instead? What will be the impact on you if you buy that DVD five years down the road? What if you put that cash towards your debt instead?

You make the little choices every single day to build your future. The better your choices, the better your life will be.

So, today, eat a little broccoli and save a few pennies. Over the long term, big dividends will be paid out.

Every other Sunday, The Simple Dollar reviews a personal finance book.

In 2005, my son was born. To say we were unprepared for it is an understatement. We bungled through the entire thing, not saving appropriately for expenses and not really understanding how much this little child would change our lives, financially or otherwise. With a little bit of preparedness, we could have rolled through this, but his emergence sent us into a financial tailspin.

Financial preparation for having a new child isn’t really that hard, but there are a handful of key things that you really need to think about and take action on. The middle and late stages of pregnancy give you six months to get ready for that new arrival, after all, and there are several important things to do shortly after birth, as well.

Stacy Bradford’s The Wall Street Journal Financial Guidebook for New Parents was pretty much written for the exact place we were at in mid-2005. I think it makes a perfect complement for parents who read What to Expect When You’re Expecting and make a genuine effort to understand what’s going on with their pregnancy and early parenthood needs.

I truly wish we had a guide like this during Sarah’s pregnancy. It would have been incredibly useful. Let’s take a peek at what’s inside.

Your Maternity (or Paternity) Leave
Quite often, the impression of maternity (or paternity) leave is far out of line with the reality of it. A couple gets pregnant, then believes they’ll have all the time in the world off to bond with their child. After all, they have plenty of sick leave… right?

Not so fast. Many businesses and organizations have really draconian policies about time off for a new baby. They’re required to allow you to have twelve weeks off, but they don’t have to pay you for it. For example, when our first child was on the way, we believed for a while that my wife would have three months off to take care of the child with pay, and I’d have six weeks off.

Not true. Sure, we could take that time, no questions asked. But much of that time was actually without pay, even if you have enough sick leave to cover it.

What’s the solution? Find out now what the maternity and paternity leave policies are for your organization and, if you’re expecting to take time that’s unpaid, start building up your emergency fund to a nice, fat level so you can blow right through that unpaid period.

Kissing That Cubicle Good-Bye
The stay-at-home question can also weigh heavy on newly-expectant parents. Should one of the parents walk away from the workplace and stay at home with the child? It can be easy to do a very simple run of the numbers and conclude it’ll work – sure, you lose $X of take-home pay, but you’ll be eating at home more and your tax burden will be less and you can drop a vehicle and so on.

But that back-of-the-envelope calculation can be really dangerous. There are a ton of things to consider. What about health insurance? Will there be a cost increase if one partner puts his or her spouse and new child on their insurance? What about the missing retirement savings? Can the employed partner bump up their retirement savings a bit to account for the lost savings? It’s vital to sit down and write a realistic, detailed post-baby budget and see whether or not it can really work.

Returning to the Grind
Child care is pricey no matter where you live, so if both partners do return to work, you will be dealing with a whole new financial world. Our daycare fees were shocking once we started getting into the routine.

Be creative with this situation. Talk to your employer and see if you can adopt a different work schedule. Perhaps you could move your “weekends” to Thursdays and Fridays and, with your partner covering Saturdays and Sundays, you only need to pay for three days of child care. Maybe you could work an alternate shift, or telecommute a few days a week. Have both partners look into these options – if you’re a good employee, an employer will work with you on this.

Who Says Uncle Sam Doesn’t Care?
The federal government offers tons and tons of tax benefits for the parents of children. You can deduct child care, education costs, health care costs, even the value of any outgrown clothes that you donate to Goodwill.

But there’s a trick (isn’t there always?). You have to be aware of these tax benefits, plus you have to keep track of your spending on them. If you donate clothes, you have to keep receipts. If you have an education expense, you have to keep track of it. Then you have to remember all of this at tax time and figure out how to claim all of these things. An accountant helps – we’ve had great success with TurboTax.

Where Should You Nest?
Having a baby in a tiny urban apartment can be very difficult. There’s not enough space, the costs for everything are high, and getting the baby around can be a real challenge. When a couple has children, they often seriously consider moving to a better location, one more suitable to the challenge of raising a child.

But to where? The suburbs? Costs can be cheaper there on some things, but commuting can be expensive and suburban life (in its own way) can be more challenging than living in a city. I’m pretty partial to living in rural areas, myself: plenty of room for children to explore, lots of free stuff to do, and tons of fresh air.

Don’t just go for the simple answer. Do some research and also do some thinking about your real needs and the needs of your child.

Finding (and Paying for) Mary Poppins
If you’ve decided that child care is right for you, how do you select it? What can you afford? What should you look for within your budget?

I would love to have a nanny for my own children, to tell the truth. I’ve nearly begged my sister-in-law, who has many years of child care experience, to consider the position. I’d be happy to pay her at least as much as we currently pay for child care, plus provide room and board for her, but she’s following her own path.

Aside from her, I have trouble imagining myself entrusting my children’s care to just one person. I value a lot of peer review – situations where one adult I don’t know well isn’t giving care without peers.

These are some of the considerations worth investigating – and they’re worth plenty of time to investigate and calculate. Don’t just jump for the first opportunity you find.

Avoiding a Health Scare
Here, Bradford makes a very strong case for health savings accounts which allow you to pay for your child’s health issues with pretax dollars. This is a great idea if you have these accounts available to you – they can make dealing with unexpected medical expenses that much easier.

As with anything, though, there can be tricks. Know exactly how your account works. Does it carry over, or is there some sort of penalty at the end of the year? How exactly do you get at the money, anyway? Make sure that these things are well-understood by you and by your partner so that this isn’t an issue.

Paying for Harvard
Bradford strongly suggests that it’s more important to save for retirement than it is to save for your children’s college savings. It’s a principle that makes a lot of sense – a good retirement means you won’t be a burden on your children late in life.

So how do you pay for top colleges if you aren’t throwing everything but the kitchen sink at college savings? Bradford offers up a few financial moves, but the biggest one is simply letting your child work through it. If you make everything totally easy for your child, how will they handle adversities later in life? Don’t sweat paving your children’s roads with gold – they’ll learn more if you don’t. Instead, focus on not being a burden on them.

Yes, You Need a Will
The big decision that new parents have to face with regards to a will is who exactly you wish to have as guardians of your child (or children) if something were to happen to both parents.

This is a pretty serious consideration, one we struggled with for a long time. The thought of what would happen to our children if we weren’t there was very, very painful to face. This exploration was valuable, though, because we now feel very comfortable with our guardianship choices.

Trusts: They Aren’t Just for the Wealthy
What about a trust? Many parents don’t even consider this – they get a nice life insurance policy and fill out a will when the children are born, but if something happens to them, their life insurance money goes to the child’s guardians free and clear. Ideally, the guardian will do something responsible, but there’s no guarantee – a surge of money might just mean a new car to that person.

The way around this is to set up a trust. Then, whatever assets you have and insurance money that comes in is handled according to your wishes in the rules you set up for the trust. This prevents the guardian from just blowing the money in a way that’s contrary to your wishes.

Life Insurance: Better Safe Than Sorry
What about life insurance? Obviously, each parent should be insured quite well with the partner as primary beneficiary, and the previous chapter obviously alludes to the idea that a trust should be the second beneficiary.

But how much? And what kind? Bradford outlines a lot of options, but I think a term policy clearly comes out on top. It has the lowest cost and it’s not coupled with a suboptimal investment plan. If you want to invest to “recoup” the cost of your insurance, just figure out the difference in cost between the term policy and the whole life/universal policy and put that amount each month into an investment account of some sort.

Accidents Happen: Are You Prepared?
The book closes with an impassioned argument for disability insurance, which handles the situation of debilitating injury that makes it impossible for you to work but doesn’t end your life. This becomes more vital as a parent because you’re responsible for the well-being of an individual who can’t earn an income for themselves – so what happens if you can no longer earn the income?

The advice is short and sweet: make sure you’ve got 80% of your salary covered, and shop around. Good tactics.

Is The Wall Street Journal Financial Guidebook for New Parents Worth Reading?
If you’re in the target audience described in the title, The Wall Street Journal Financial Guidebook for New Parents is a very worthwhile read. I truly wish I had read this book in 2005 during my wife’s pregnancy.

Even better, this book can be an incredibly useful baby shower gift. If you know someone who’s having a baby shower, include The Wall Street Journal Financial Guidebook for New Parents in the gift you give, particularly if they’re a few months away from delivery. The advice this book provides is vital during the run-up to having a child – there are a lot of additional little tips all over the book, from the small (buying baby items) to the big (considering private school).

The Wall Street Journal Financial Guidebook for New Parents isn’t a world-changer, but it’s a great compendium of really useful information for new and expecting parents, perfect because they’re about to embark on a whole new chapter in their life.

Every other Sunday, The Simple Dollar reviews a personal development, personal productivity, or other book of interest.

The New Global Student by Maya Frost is one of those books that takes what you think you know about a subject and flips it on its ear. This time around, it’s the standard route that most high schoolers take towards their education: take lots of AP classes, sweat about the ACT and SAT, apply to hyper-competitive colleges and hope you get in, apply for piles of scholarships, sweat out the FAFSA, then go on to college, where you’ll likely be buried in mountains of student loans.

This process is seen as so standard that many people don’t even question whether or not it makes sense to start pushing our fourteen and fifteen year olds through this woodchipper. The New Global Student argues that this path is not the only path – in fact, Frost argues that there is a much better way to help your children transition into the latter stages of their education. Hence the eye-catching subtitle: Skip the SAT, Save Thousands on Tuition, and Get a Truly International Education.

I fully expect that many people will immediately reject the central premise of this book – that the “traditional hypercompetitive SAT/AP/GPA path” can be easily dumped and a new path to educational success can be found. All I can say is this: time and time again, throughout my college career, the people that seemed to have the best grasp of what they needed to do to succeed and the value they could get out of college were people who came in from outside that treadmill.

Ready to dig in? Here are my impressions of and thoughts on The New Global Student.

One: Creative, Not Crazy – Our Family’s Story
In the summer of 2005, the Frost family sold everything and moved to Mexico for a year, then to Argentina. The family had four teenage daughters, including a high school freshman, a junior, and a senior, and they were unable to speak Spanish when they left. Not only that, the girls also spent years in other countries on yearlong exchanges. They did not worry too much about the perfect GPA and they also didn’t take the SAT. You might think that this would blow up all of the girls’ chances of getting into a good school, but instead it did the opposite – it painted very compelling pictures of young women who were experiencing the world, not just pumping up their numbers. Compelling enough to get them piles of scholarships and admissions to good schools.

Two: Beyond Math and Mandarin
Frost’s argument about why all of this works really boils down to two big factors. First, the diversity of experiences forced the children to learn how to be collaborative. They were constantly being put into cultural and intellectual situations where they had to learn to work well with others in order to get through it. In contrast, high school in America – with the SAT/GPA/AP milestones – are highly competitive without much focus on collaboration. The collaborative nature of their high school experience, in other words, was a huge advantage.

Second, the children were heavily ingrained throughout their lives with five key principles: flexibility (independent thinking, eagerness to explore new ideas and places), awareness (ability to intelligently discuss a wide variety of topics, compassion and respect for others), curiosity (an interest in a variety of areas and the ability to ask questions and investigate those areas), trustworthiness (realization of the vitality of being dependable, strong communication skills, complete things on time), and self-direction (establish and move towards goals, internalized work ethic and motivation).

These aspects combine together to make young people who are ready to tackle anything. In my eyes, it’s a great recipe for parenting in the modern world – I strive for all of these things with my own children, even at their young age.

Three: Fego: You’re Soaking in It!
What keeps our children from having these attributes? Frost points at two huge factors.

First, fear. We fear letting go of our kids. We fear not doing enough. We fear taking charge. We fear slowing down. We fear unstructured time and unstructured activities. We fear falling behind. These fears all lead us towards pushing our children hard down that typical path. Instead, we’re better off hammering in the big principles of independent thought and self-responsibility when they’re young and letting go as much as we can when they’re older.

Second, ego. We want to believe that we’re vital to the process of our children’s final steps towards adulthood. We’re not. Once puberty hits, we’re a support staff – we’re no longer absolutely vital to the process. Similarly, we tie our own sense of self-worth to the accomplishments of our children – if our kids get a high score on the SAT or get an A in an AP class, that’s proof that we’re great and something we can brag about to others, right? Wrong. It’s just ego fuel that actually hurts our kids.

Another interesting argument: our children have huge advantages with the advent of computers, the internet age, and the easy access to information. Shouldn’t this mean that they blow us away in terms of intellectual growth at a young age? The problem is that instead of focusing on actually raising intellectually curious and self-reliant kids, we focus on them getting A’s in classes that likely aren’t pushing them very hard at all. So why should they grow if all that matters is that A? Instead, the book suggests using local community colleges to put your child in genuinely challenging classes that really push them – a “B” in a class that really pushes their work ethic and intellect is much more valuable than a cruise-control “A” in every aspect other than the almighty GPA.

Four: AP, IB, & SAT – OMG!
So many students today stress themselves out over taking tons of AP classes and getting a great SAT score. Frost argues that both of these have less value in terms of getting into college than you might think.

First of all, she argues that so many students are taking AP courses that they’re becoming watered down. With B- students taking the courses and sometimes passing, the material may be at a somewhat lower level than before. On top of that, students are now taking three or four AP courses at once. As a result, many colleges are eliminating the credits they offer in exchange for AP courses. In the end, the value of an AP course is lower than it once was, both in terms of what’s learned and in terms of how colleges value it.

A similar phenomenon is happening with the SAT and ACT. High schools are now beginning to require the exams; meanwhile, community colleges don’t require the test at all and most colleges and universities are de-emphasizing the test in terms of admission criteria. In other words, instead of becoming a useful prep tool for college, it’s become so universalized that it no longer matters as much as it once did.

What does matter, then? How can a student stand out? Frost points towards the IB, which provides a rigorous plan of study available in many different nations that, upon completion, is accepted (and often considered quite valuable) for college admission. Plus, the IB de-emphasizes the pressure of AP classes and the SAT, instead focusing on teaching how to learn and how to collaborate, skills invaluable in a person’s career. Another approach: taking the GED as early as possible, skipping the high school “experience,” and moving on to college early.

Five: Meet the New A Student: Artful, Advanced, Atypical, and Adventurous
Frost argues (quite well, with a pile of anecdotes) that a well-balanced student is incredibly well served by spending time abroad during their high school experience. Such an experience provides a huge deal of personal growth, vastly improves personal awareness, and demonstrates on college applications that a student is committed to outside-the-box exploration.

Here’s the thing: people at this age are passionate and that passion floods in surprising directions. If you stifle that passion and attempt to channel it in a way you see fit, you’re likely to see the dam break and see passion flow in a terrible direction. Instead, offer your child as many positive channels as possible and see where their passion takes them. Putting a study abroad experience on the table certainly does that.

Six: The Boldest Advantage: A Yearlong High School Exchange
Almost all parents feel some strong reticence at the idea of sending their child abroad for a year to study. That’s the “fear and ego” mentioned earlier raising its head.

Instead, a study abroad program – if done with thought and planning – is probably the best move you could make for your child. It’ll help you deal with the “empty nest” problem in a cold turkey way, keeping you from being a helicopter parent when your child moves on. It’ll show your child in the clearest way possible that you respect their independence. Most importantly, though, it’ll give your child a huge dose of personal and intellectual growth as they learn about a different culture and different way of life while also continuing their education. Few things set up a student better for college than such an adventure.

How can you make the most of this? Go early (sophomore year is a good target), go long (a full year instead of a semester), and go challenging (a place with a different language and a different culture).

Seven: How to Save Thousands on College: Study Abroad
A similar philosophy applies in college – go early (sophomore year is a good target), go long (a full year instead of a semester), and go challenging (a place with a different language and a different culture). A study abroad program while in college also has an additional benefit: it’s cheap.

Many people scoff at this, pointing toward expensive study abroad packages offered by schools. The truth, though, is that those packages are often glorified travel packages – instead of immersing the student in another culture, it actually isolates them in a vacation-like bubble, housing them with other native English speakers and providing every possible accommodation. Very little actual value is gained.

Instead, consider applying directly to the university you desire to attend as an independent international student. You’ll live in the same housing as students there and will be fully immersed in the culture instead of isolated in a “submarine” of your own culture. Plus, the price is reasonable – often very reasonable. In many cases, it’s far less expensive than the price you’re paying for university at home.

Eight: The Full Family Deal: Sabbatical or Sell-It-All?
A third option – one that works well if you have multiple high-schoolers at once – is to simply spend a year abroad, enrolling your kids in school in that country for a year. This will be something we consider circa 2019, for example, when we have two children in early high school.

Obviously, this doesn’t work for everyone, but it does have certain advantages. If you can find a job in your career in another country, it’s a huge resume booster. If you’re engaged in a creative career, immersing yourself in a different culture can pay real dividends.

This is something that’s at least on the radar for us in several years. If my wife can get a job teaching English in another country for a year, we would be quite interested in pursuing this. I can in theory write from anywhere, too, so that also helps.

One good compromise – a summer-long sabbatical. Rent an apartment in a foreign nation for three months and see how things go. Engage in every activity you can while there – not tourist stops, but the way of life that people have there. Shop at their stores. Eat their food. Learn their language.

Nine: The Get-Real Guide for Bold Parents
The final chapter is something of a clean-up of the many issues brought up by this book. How do you handle the criticism from others who say you’re sinking your child’s chances because you’re not following the “normal” path? What about their safety?

Each of these questions has a very reasonable answer. As for the criticism, such study abroad programs actually vastly improve chances of college acceptance and of growing a student to the point where they can really take advantage of college. With the safety issue, high school students are often more safe abroad than at home – no drivers under the age of eighteen, students are protected from anti-American sentiments by their youth, and students are naturally more cautious because they’re in unfamiliar territory.

Is The New Global Student Worth Reading?
I’ll be honest with you: I’ve been questioning the absoluteness of the high school/SAT/college application/expensive college pipeline for a long time. I’m actually in favor of delaying college for a year or two after high school, allowing other life experiences to fill in the gap. Why not let a student spend a year working hard at a job or for a non-profit in between high school and college, learning what it actually means to earn a paycheck and make ends meet and what the value of a college education actually is. I know I certainly would have benefited from such a sojourn. I’ve also been thinking a lot about traveling abroad for an extended period when my children are older, perhaps spending a year in another country and allowing them to attend school there (Great Britain, perhaps, or maybe a nation where we don’t speak the language natively).

Reading The New Global Student actually knocked down the idea of the standard pipeline even more. It’s loaded with food for thought for any person with children school-aged or younger. Even if you consider the general idea to be nonsensical, there’s enough material in here about how to set the path for your child to excel in their educational and professional career and save money along the way that it’s at least worth a read for specific tips.

For us, it’s opened the door to a lot of discussion about what we can do as parents to prepare our children for this ever-shrinking world.

If you have kids, you owe it to yourself to read this one. It’ll really make you think about their education and how simply connecting the dots might not be the best route.