It happens in business all the time.
When two parties want a clear understanding of how their relationship is going to work (and the rights and responsibilities of each), they get their agreement written in a contract.
So why not do this with your kids? Especially if you have a teenager, as he or she embarks on one of the scariest responsibilities – for parents, anyway – of growing up: driving a car.
This might not sound like a financial-planning topic, but it is.
While having lunch with a local accountant several years ago, the subject of raising kids came up. He said that one of the best things he did as a parent was to make his kids sign a contract before he allowed them to drive. It worked so well, he said, that he rarely had to worry about their safety – or even keeping the car maintained.
For a sample behavior contract for teens, including one on driving, go to http://www.teenbehaviorcontracts.com/?a_aid=0c33ba14&a_bid=9d65c3d4
Most psychologists believe that creating a contract is a form of positive problem-solving communication – an active two-party negotiation in which both sides are interested. It’s effective to write down what you expect of your child and what the consequences will be if the child deviates from the program.
While it seems to work for driving a car, this technique can be used with any child old enough to read and understand what is included in the contract. These contracts provide children with early lessons in contractual agreements and the concept of what it means to sign a document and agree to its stipulations – especially financial ones.
Without written agreements, discussions often become forgotten, especially when it is to someone’s benefit to do so.
Other benefits of contracts include giving the child some sense of justice and control. The contract has the “final word,” which underscores the importance of being clear about responsibilities of both parties as well as the consequences of breaking them.
Signing the contract increases the commitment of the parent and child to fulfill their stated roles. Once your children have seen it in writing, it’s hard to deny that they understand it. Also, make sure they get a copy.
So how is this tied to financial planning? By instilling the discipline of following the contract terms, parents are teaching their teenager about responsibility and consequences – before they head out into the “big bad world” that won’t be so forgiving if they don’t perform as expected.
Teaching this early is key: I have several clients with adult children who haven’t learned how to be financially independent. Nothing can be more damaging to a relationship – and a good retirement plan – than parents nearing retirement who are spending more on their kids than themselves.
For guidelines on how to create a teen behavior contract, go to http://www.interestingarticles.com/parenting/template-to-create-a-teen-behavior-contract-3196.html
And remember, experts suggest that the human brain is not fully developed until about age 25, so if you are feeling frustrated by your teen, know that you are not alone.