Protecting Kids from Financial Predators
With clear indications that financial regulations are about to resemble cowboy rules (dismantle Dodd-Frank, loosen fiduciary standards, undermine the Consumer Financial Protection Bureau, and who knows what else?), families are asking:
How do we protect our next gen consumers, employees, and beneficiaries from financial predators?
You’ve made it through one of the most unnerving parts of parenthood: teaching your kids about sexual predators. Now they’re older and it’s time to hand them a debit or credit card and your new anxiety is: how do I protect them from financial predators without causing alarm or undermining their independence?
Here are five strategies to provide kids with financial self-defense in the new financial landscape:
- Insist they practice ‘due diligence’ (yes, even that seven year old!). Use these techniques to help them build an understanding of what it means, by age and stage:
Introduce the phrase ‘due diligence’ and how to spell it.
What to say
“A new Lego set? Sure, let’s do some due diligence on how it measures up to the last one we bought.”
What to Do
(For moments like this do your own homework first. The first rule of financial defense for parents is no surprises!)
Invite Sam or Susie to sit with you and watch a YouTube review on whatever you plan to buy. There’s not much left that hasn’t been visually reviewed. Here’s a sample: https://www.youtube.com/watch?v=HSPEGhOeYj0
Then ask questions like:
● Is this what you imagined it would look like?
● Do you agree with what the reviewer says?
● Let’s look at how much it costs (go to a new site). Do you think it’s worth the price?
● What if you didn’t buy this–what else might you do with that same amount of money (this foreshadows the introduction of opportunity costs)
The goal is not to make kids hyper suspicious, but to help them develop critical thinking skills – a life skill they will need for all aspects of their life!
If you had a chance to introduce the phrase earlier, the next stage is practicing it regularly. Add a due diligence ‘policy’ to your kids’ allowance management: a purchase or decision to buy or do something requires evidence of “due diligence!”
Best introduced a few days before the next birthday:
“Now that you’re (11, 12, 13…) you’re old enough and smart enough to do some of your own due diligence. From now on, of there is something you would like to buy, or do, I’m going to ask you to make your case for whatever that is, by showing me you have done some due diligence. Do you remember that that is?
Due diligence usually includes:
● Cost (how much and is this the best place to buy from?)
● Reviews (what do other people who have used the product/done the experience say.)
● Opportunity costs. If you buy this, what else might you NOT be able to do? If you don’t buy it, what else might you do?
● What else should we think about in due diligence?
Stick to this. Life is busy and fast. It is easy to say, “OK, just this once, don’t bother, I already know this is a good product.” The point here is to help kids develop a habit that will help keep them financially safe, not just please you. Take time to get the due diligence report!
Expand the scope; raise the stakes. These are the years kids choose to go on volunteer activity trips, explore colleges, and make bigger purchases (car? skis? phone?)
“You’ve gotten pretty good at practicing due diligence. I’d like to give you a little more responsibility. How about doing the due diligence to (fill in the blank here). As long as I’m convinced you’ve done a thorough job and you stay within the budget we agree on, I’ll go with your choice…”
Stick to your word. Getting it right every time is unlikely for any of us. But a major big purchase mistake at 14 or 15 is probably less disastrous than a bigger one at 25! Show your confidence in their judgment and, by all means, if it is going to put them in danger, step in! You are still the grown-up. Otherwise, help them acquire financial self confidence as they take on greater responsibility.
Provide new, more sophisticated resources.
Chances are, your kids have become more adept at on-line due diligence than you. But their access to experts is probably still a bit light. Make sure they get access to reliable experts AND understand that ‘experts’ require substantial due diligence too!
“Before you head for college, I’d like you to talk with a couple of people who have real experience choosing credit cards. Your Aunt Jane is a tiger at this, so you might want to talk with her. But I think you should choose someone else as well. How would you go about selecting a reliable expert?”
Make sure Aunt Jane really is competent and available. And ask for the full report on the chosen expert.
- Demand a fiduciary standard – in writing – from any financial service that has impact on your kids. Teach kids what a fiduciary is, and why it is so important. This article is a good refresher if you’re unsure yourself.
- Nurture financial role models who live the kind of financial ethics and moral compass to which you want your children to aspire. If you know you’re a carpe diem kind of person (life is short, let’s fly to Paris!), but you hope your kids learn to save for a rainy day, you’ll need to make sure they spend time with attractive alternatives to your habits. If Uncle Frank is reaping the rewards of his fiscal mindfulness, make sure they have time to hang out with him. And if a coach or teacher holds a special place in your kids’ lives; ask them to share their own financial habits – sometimes parents are not the best messengers.
- Enlist the help of others you trust. Let friends and family know what you are doing; and, if appropriate, invite them to participate in educating your kids.
- Read with kids. The research is clear: children who are read to are better readers and develop better logical thinking and analytical skills. And older kids who’ve developed good reading habits may need a mentor to steer them towards useful reading… here are some suggestions. I’ve offered reading suggestions in an earlier blog, but here are a few suggestions for a new day:
That Costs Two Shells by Nancy Loewen
Pigs Will be Pigs! by Amy Axelrod
It’s tempting to lecture kids, or give them three jars and urge them to ‘save, spend, share.’ But following the antics of strange animals or objects they can relate to is often more effective.
The Not-So-Great Depression by Amy Goldman Koss.
During the latency age years, a story that nurtures emotional and financial intelligence is a great foundation for the teen years.
Investment Guide for Teens by David Gardner
The Wealthy Barber by David Chilton
While I’m not a great fan of having kids start investment funds at 15, David Gardner does do a good job ‘explaining.’
No One Ever Told Us That: Money and Life Letters to My Grandchildren by John Spooner
The Millionaire Next Door, Thomas Stanley, William Dank
Both of these books should be read BEFORE kids go to college. Give them as a birthday gift with an incentive to read them – it will be worth the investment!
A Town named Alice by Nevil Shute
Wealth and Families, Lessons From My Life’s Journey by Howard Stevenson
The improbable story of entrepreneurship in the most horrible circumstances and Howard Stevenson’s wisdom make for a great pairing. Recommended as summer reading before college or taking that first big job!