Monday, January 28, 2013

Can and should banks help the children?

It's for our children. I love it when politicians give some variant of this argument. I suppose if they really cared about our children, they would stop running up the national credit card on them. But doing so would not allow us to "protect our children". Protect them while saddling them with our bills. Real good parenting.

Politics aside, I received a school of hard knocks lesson in how poorly our young adults are prepared for personal financial management. Prior to sending our daughter off into the hard, cruel world, I sat her down and went over budgeting and the importance of saving. We developed a spreadsheet together to go over her expenses, and her after tax income from her paycheck. We allocated a certain amount to auto-deduct into a savings account. We used Excel, but there are plenty of nifty apps such as Koku (pictured) so they can use their indispensable phone.

Then she left. And ignored everything we discussed. We could have let her work her way out of her money mistakes. I'm a firm believer in letting kids touch the stove. But no. Most of her financial misdeeds fell to me and my wife to clean up. I often ask other parents about their situation. Most either continue to provide financial support to their young adult children or let them struggle. Problem: when digging yourself a hole, the first order of business is to stop digging. These kids, I suspect, keep plugging away at it.

Not to play up my generation. But when I left the house, there were no checks coming my way from Mom. No paying auto insurance, cell phone bill, etc. It was.... good luck son! Today, there is a greater sense of dependency and entitlement, as if reducing our retirement to support our adult children's lifestyles is something to aspire to.

Isn't this an area begging for help from financial intermediaries such as banks and credit unions? Parents don't want to support their kids ad infinitum. I doubt brokers or insurance agents want to fill the role, because they still get compensated on production. And there will be no big dollars in the near term for becoming the kids' money mentor.

But kids and parents need help here. There is an emotional aspect regarding dealing with money issues between them. Having an intermediary makes sense. Compensation can be in the form of a fee, or for "premium" customers, no fee (minimum balances). FI customers are extremely sticky, so not only will you win the loyalty of the parents, but have a great chance of banking the kid for life as they move from broke, to borrower, to saver. I think, with training, the emerging "universal associate", assistant manager, or in some cases, branch manager will be able to fill the role. Imagine once per month, ten minute Skype sessions with the college student checking in on their money management practices. It could set them on sound footings for life.

There may also be profitable opportunities for college financing, as this is an area that begs for conservatism. Money has been seemingly so free to kids in college, they burn through it faster than a pro athlete at a strip club. They go overseas for study or vacation, take spring breaks, stay in college for six years, all because that first payment isn't due yet. But when it comes, they'll either have to default or live with the parents because the monthly nut is so huge they can't make it on their own.

Can't we create a financial package and service and price it so we grow revenues, leverage our infrastructure and expertise, and win the loyalty of parents and their young adult children? I think we can.

What are your thoughts on the subject or do you know of FIs that are doing it?

~ Jeff

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