Parents want the best for their children. They want them to excel in school and get into a good college. They want them to be passionate about a sport or hobby. They want their kids to be well-liked among their peers and to develop strong relationships and social networks. These are all examples of how parents define success for their children.
But, what about financial success? Let’s not overlook the opportunity parents have to instill financial values, teach their kids about money and a lay a foundation they can build upon in the future.
“Success” means different things to different people. For this discussion, let’s agree that success means being financially independent and responsible. It’s not about the amount of wealth alone that someone accumulates; it’s about the behaviors that go along with it.
One of my favorite parts about being a financial advisor is having the opportunity to work with families in providing their kids with financial education. This includes having conversations about basic financial concepts, their personal financial situation, and/or their family’s wealth. I’ve learned some valuable lessons in having these conversations over the years, and I’d like to share some of them with you here:
Start Talking About Financial Values Now
Teaching kids about money and how to be financially responsible begins at an early age. Children watch and learn how their parents and other adults handle financial situations, so it’s critical to demonstrate positive behaviors from the get-go.
Here’s a personal example – as early as I can remember, my parents gave me a small weekly allowance. Each week I was asked to divide that amount into three buckets: spending money, savings, and giving away. What I learned from that exercise was that it was important to save for the future and use some of what I had to benefit others.
As you think about ways to get your children involved and interested in financial matters, consider whether some of these ideas might foster the behaviors you desire:
- Set up an account for charitable purposes, such as a donor-advised fund, and encourage your children to participate in researching charities and determining how much each charity should receive.
- Open a small investment account and allow your children to pick some, or all, of the investments. If the account holds an investment that is interesting to them, like stock in a company like Facebook or Nike, your children will have a greater desire to keep an eye on how it’s doing. When the monthly statements arrive, use that as an excuse to have a check in conversation and teaching moment.
- Even if you desperately want to pay for your child’s first car or college education in full, consider getting a small loan so they can have some skin in the game and learn how to use debt responsibly.
Always Start with the Big Picture
More often than not, some kind of life-changing event gives parents the push they need to have that first financial conversation with their kids. Some of the big events I see are:
- Reaching an age when the child will soon have control of some assets
- The child is leaving college and joining the real world
- There has been a shifting of wealth within the family
In these situations, people usually react in one of two ways. They either try to avoid having a financial conversation because they believe the children aren’t ready, or they divulge all the information they have at once. The best response is likely somewhere in between. If you bombard them with too much information and too many specifics, they will likely lose sight of what’s important, and if you avoid the conversation, they will never know what you consider to be important.
My advice is to start with the big stuff. For example, if the child is assuming ownership of an account worth $100,000, start with where the assets originally came from and the intentions and goals for those assets. You may also want to talk about how it is generally invested and the difference between stocks and bonds – but save the specific details for later.
What is a better way to grab your children’s attention than to focus on something that is directly impacting them today? Talking to a 22-year-old about the importance of life insurance or estate planning is likely going to fall on deaf ears. Instead, draw them in by talking about things that require action now or will be pertinent in the not-too-distant future.
For example, when your child begins his or her first job, use a 401(k) plan as an opportunity to talk about the benefits of saving early for retirement and to talk about the different ways to invest. You can eventually use this as a springboard to talk about other types of savings, such as individual retirement accounts (IRAs) or building up a safety net of cash.
Another topic that is often avoided, but which is important to broach early, is prenuptial agreements. If it is important to you that your child has a prenup, I encourage you to discuss this with your child before a significant other comes into picture. It’s a much easier conversation when you are talking about “what ifs” rather than a specific person.
Everyone Is Different
The right timing, message, and method of communication about personal finances is going to be different for each person – and that’s okay. As much as you may want to create similar experiences for each of your children as you educate them about finance and wealth, remember that it may be in their best interest to treat each child differently.
The goal of being purposeful and intentional is to set the stage for your children’s success. Once you define the financial values and behaviors that you feel are most important, you can take actionable steps to instill those values in your children as well.
For more information on how you can help teach your kids about money and build a strong financial foundation, see Best Ways to Raise Financially Smart Kids.
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