There are many life lessons and responsibilities that parents work hard to impart to their children. As a parent myself, I understand the pressures we face when it comes to raising children. Also, as a financial advisor, I pay unique attention to the financial lessons we pass to our children and find it a priority to raise our children to be financially fit and independent.
Many of our clients express a similar desire, so I thought it would be prudent to put together some tips from my personal and professional experience.
It’s never too early
It’s smart to start teaching financial lessons to your children when they’re young. Let your children deal with cash and see you handling cash. Credit cards can be mysterious and give the impression of an endless money supply. Help them understand how cash works and experience the emotional connection… and pain when it’s gone.
The allowance concept is tricky. You don’t want to reward children for doing chores they naturally should be doing. However, you do want them to feel the pinch if they do not accomplish the tasks they’re responsible for. Rewarding kids monetarily for good grades or sports achievements might send the wrong message. Setting a weekly allowance that’s given when the week’s chores are accomplished can impart the appropriate message.
Encourage children to save for items they’re coveting and teach them the concept of delayed gratification. There’s a famous study that asked children if they would rather have one marshmallow now or wait and have two. Surprisingly, more children opted to wait and have more. As a family, there are many ways to introduce saving up for an item that you really want. Start a family vacation jar, so children can physically see you saving for a future goal.
Encourage children to invest. Open a small investment account and have them pick a company they like and/or use; Apple, Starbucks, etc. The company may or may not be a good investment, but it teaches about equity ownership and how the stock market works.
Get them involved at a young age in financial transactions. Take children to the bank and have them fill out the deposit slip and show them their savings account statements, so they understand how banking works. Many kids go to college before they realize how a bank account works, and that’s far too late. The sooner you familiarize children the better. You are not getting taught these things in school.
Overall, it’s important to be open and honest about money, so kids aren’t mystified or intimidated. When they ask how much things cost, tell them. These lessons do not stop when your child leaves the nest. Even if you’ve raised a financially responsible adult, you still have to continue to offer similar financial guidance with your grown children. You don’t want to lose your own financial independence because your adult child can’t maintain their financial freedom…