If you’re like most parents, you have a never-ending list of things you want to teach your child so they grow up to be a successful adult who contributes to society. From a young age, you model and instruct them in how to share, what respect looks like, and how to handle responsibility.
As a society, we are excelling in some areas of parenting, but falling behind in others. In a recent National Financial Capabilities Study, only 24% of Millennials (age 23-35) were able to answer the first three financial literacy questions correctly, and a mere 8% were able to answer them all correctly. (1)
Do you have a plan for how you are going to teach your kids about budgeting, saving, or building credit? It’s easier to start when they are young than to play catch-up when they are teenagers. Here are some strategies to consider that will empower your children to make better financial decisions as they move through life.
Practice What You Preach
Anyone who has children knows that more is caught than taught. If you want your kids to grasp the importance of handling money wisely, you need to let them watch you make financial decisions and model what you want them to learn.
A recent T Rowe Price study found that 8 out of 10 parents feel that they aren’t setting a good financial example for their kids. (2) If you spend money recklessly without a clear purpose, your kids will see that. If you rely on credit cards to cover expenses or argue with your spouse about finances, they’ll accept that behavior as the norm. Your actions set a precedent, so be intentional about how you model money management to your kids, and let their watchful eyes be a motivator for you to change the negative financial habits you may have picked up.
Start The Conversation
Sometimes a silent model isn’t quite enough since many areas of personal finance aren’t visible. That is why it is critical to talk to your kids about finances. Unfortunately, talking about money is a long-standing cultural taboo. A 2013 study found that 63% of Americans would rather share their body weight with co-workers than their bank account balance. (3) Often this reluctance to discuss financial matters spills over into the home as well.
Forty-nine percent of the parents in the 2017 T Rowe Price study said they rarely or never discuss family finances with their children, and 69% of parents experience at least some reluctance to having such a discussion. (4) Many parents even say they would rather discuss drugs or sex with their kids than money. (5)
But how are kids going to learn about money if you avoid talking to them about it? Most parents don’t expect their kids to understand the dangers of drugs just because they have never seen their parents take drugs. Some things require more in-depth discussion and openness, and finances are one of them. And if you set the precedent of being open about finances when they are young, hopefully they will still come to you for advice or assistance when they get older.
Give Them Opportunities To Learn
For financial understanding to truly sink in, you need to get your kids involved. Learning theory and research have consistently shown that the more active a learning experience is, the greater the learning gains and retention. (6) Most people have to do something to really learn it.
How does this work with kids? If you do a simple online search, you will find countless creative ideas for every age level, such as letting them divide their allowance into different categories, setting short-term and long-term goals, and helping them understand what items are worth.
Practically, give your five-year-old some money to buy something at the store so they learn the value of different items and realize that in order to obtain something (a toy), they have to exchange it with something else (money). Try letting your ten-year-old figure out the cost of the new video game he wants, plus tax, and help him save up his allowance for it. Let your teenager buy her back-to-school clothes on her own with a set amount of money. Don’t be afraid to let them make mistakes either. Sometimes learning the hard way is the best way to grow, and it’s better for them to learn those lessons when they are young and the consequences aren’t as severe.
Imparting financial wisdom to your kids is a challenging process that takes years. So if you don’t feel like you’re doing an adequate job of teaching your kids about money, you’re not alone. Even if you are doing a good job, you probably agree with the 77% of the T Rowe Price survey parents who said that they wished there were more resources available to help them teach their kids about financial matters.
Take The Next Step
At Advisors 360, we believe in taking a proactive approach to finances, and that goes for your kids as well. As any parent knows, you parent for the long term. Rarely do you see fruit from the seeds you’ve planted right away, but don’t let that stop you from preparing your children well and setting them up for success on their financial journey. To set up a meeting, call us at 408.778.8280 or email email@example.com. Together we can make sure that this next generation enters adulthood with the knowledge necessary to build a secure financial foundation for their bright futures.
Mark Taylan is the Managing Director of Advisors 360 LLC and a Private Client Advisor with more than 17 years of industry experience. Well versed in all areas of wealth management and financial planning, he specializes in serving affluent multi-generational families seeking ongoing counsel on a variety of subjects as they navigate through the different stages of their retirement. From utilizing advanced technology to implementing a multi-manager, multi-strategy approach, Mark has built a personalized and unique private client experience. Learn more by connecting with Mark on LinkedIn.
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