The recession has caused many working class families to deal with debt. While we are primarily focused on a parents ability to pay bills, we must not ignore the growing issue of young adults building up bad credit and large debts.
This is the second of six original essays based on my new book, Trust Me: Helping Our Young Adults Financially, which I hope will help parents talk to their children about finances and responsibility.
READ PART ONE HERE
"How much do you need?" a father played by Jason Robards in the movie Parenthood asks his hapless son (Tom Hulce), with a look that says "... you worthless, disappointing, lying bum"—while reaching into his pocket.
As a psychologist as well as a father, I wanted a way to communicate exactly the opposite. A way to give my sons and daughters the consistent message, "You’re worthy, you’re capable of succeeding, I love you, and we’re going to help you." A system that helps by teaching them to fish rather than merely handing them a wad of fish.
Money may well be part of the Deal we discussed in the previous excerpt from Trust Me. But money is only one component of the support you’ll give. And support is only one of three elements this system requires from parents and other mentors, whose job is to build the youth’s
motivation, which includes confidence that the outcome will be worth the effort;
education, the skills and knowledge that make his or her self-confidence realistic;
support, "my family is here for me" emotionally as well as financially;
belief in Self, confidence that "I can do this".
That last need, confidence in one’s abilities, derives from all three of the others. So we can think of the mentor’s input as a magic triad: Motivate, Teach, and Support. For our young adults to earn our trust by becoming independently responsible, we have to earn their trust by being reliable motivators, teachers, and supporters.
Motivate
The financial help in your Deal may provide a "reason" for a youth to change his or her behavior, but it’s only a small part of the motivation, which refers to something inside. When a person is motivated, she doesn’t merely want to be elected to office, or win a sports trophy or get a particular job. "Motivated" means she’s choosing to put her energy and discipline into attaining that goal. Conversely, someone who claims to be motivated, but makes no visible effort toward the goal, is lying to herself.
What makes some young people pursue goals in the face of repeated failures and obstacles, while others retreat to the couch with the TV remote when the going is tough? To say that one has more motivation than another is only to beg the question: why?
Parents and teachers build children’s knowledge and skills directly, through sequential steps. But they do as much, or more, indirectly by building self-confidence ("I believe I can handle this") and self-esteem ("I’m worthy of a good life"). The diagram shows how the child’s increasing abilities feed confidence and self-esteem, while all three fuel continued learning.
Children in affluent families who grow up with a healthy dose of self-esteem feel entitled to their affluence, in a constructive way. They pursue goals with confidence.
They’re also motivated to learn about managing money, so they’ll be prepared when wealth comes to them.
Sometimes, though, affluence can have detrimental effects on self-esteem, leading to too much or too little entitlement. Wealth affords no protection from depression, low self-esteem, or anxiety, symptoms that might arise in any developing youth, for whatever combination of biological and situational reasons. When they happen to hit a young person in a wealthy family, he or she may begin to feel undeserving of the easy life. "Why me? I don’t deserve all this. I didn’t earn it, and I wouldn’t be able to earn it on my own if I had to."
What do such children and adults do? They look to the things money buys—the toys, the collections, the clothes and superficial friendships—for reassurance of their entitlement, perhaps even their worth as a person. They may act as if they felt an excess of entitlement, but it’s a pretense.
Motivation is almost impossible without belief in self, which comes from having faced and met challenges. The most exciting incentives in the world—the promise of a Ferrari, say, if the student gets straight A’s for a year—won’t motivate them to work harder unless they believe they’re capable of that achievement.
My son, Nick’s, school record was decidedly mixed because he blew off any class that bored him. Here he recalls the kind of experience that built his self-confidence.
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Nick: Believing I could do the job
My first job in the adult world was a summer job when I was sixteen, in the main offices of Ameritech. I got hired to work on their website, only because my brother was the head of that department. My boss, who was about forty years old, reported to my twenty-eight-year-old brother, which made me even more nervous. The first day, the guy handed me a four hundred page operations manual with a million tabs all down the side, in a binder, and told me to make an exact replica of the thing. I was hired because I knew HTML coding; I had no idea how to do this adult task that was presented to me. But I came back to him two days later without having asked anyone for help or advice, with an exact replica. I just broke that task down like an assembly line, and executed it. Which, basically, is what I’ve found to be successful any time an assignment overwhelms me: break it down into layers.
At the end of the summer, that boss told me he threw both copies away. It was an expired manual. From the perspective of a guy who’d been managing cubicle farms for twenty years, and was asked to hire his boss’s little brother, he wanted to test how sharp I was, and more importantly, whether I’d whine about it.
Teach
A huge amount of misinformation about economics floats around among young adults’ peers. I have been astonished at how strongly a young person may insist he or she really does understand the credit system, or taxes, or investment, while staunchly maintaining basic misconceptions. Correcting their understanding meets with resistance as it calls into question not only their own sophistication, but that of the friend who misinformed them in the first place.
For example, I find most young adults firmly believe that the best or only way to establish a credit rating is by going in debt to a credit card company and paying the minimum monthly balance—an egregious, self-serving lie propagated by the card issuers for many years.
What about your kids? Do they know ...
how to calculate the marginal value of a purchase to the purchaser (for example, when a more expensive car might be more economical)?
how to calculate the actual cost of a purchase when borrowing is required (the cost of the loan as well as the price)?
the concept of opportunity costs (what am I giving up by spending this money in this way)?
how checking accounts work (minimum balance, time to clear, what happens in the case of insufficient funds, how does one prevent that, etc.)?
how interest works—as a saver, and as a borrower?
pros and cons of secured versus unsecured loans?
how insurance works (auto, home, health)?
Other types of knowledge for which parents can be the principal mentors include:
risk management—from backing up computer disks, to door locks and fire protection, to preventive maintenance on a car;
home economics, especially how to shop for food and prepare meals;
if they have a trust or other invested funds, what this means and will mean over the years;
how to present themselves on job applications;
pay stub deductions and reporting;
leasing an apartment.
Support
As in the example from the movie Parenthood, money can be given in psychologically destructive ways. The emotional support to a person in financial straits doesn’t come from the money, it comes from the offer, the caring, the giver’s confidence. "I’m prepared to help you learn how to work your way out of debt and stay on top of your expenses. It isn’t easy. We’ll have to take a thorough look, together, at how you’re trying to earn a living and where your money’s going. Do you want my help with that?" Whether the youth chooses to accept the Deal or no, the parent has shown support by offering.
What if the offer isn’t accepted? Then the youth’s money problem (assuming they brought it on themselves) is no longer your problem. To bail them out unconditionally is likely to do more harm than good, enabling further bad choices and a permanently distrustful, frustrated relationship.