In our wealth management practice, we are often asked how our clients can best teach their children about money to help them down a path to becoming prudent financial managers as adults.
Gained in more than three decades of service, the following are some of the best techniques we’ve learned to help families pass along a legacy of savvy money skills. These suggestions are for kids 10 and over, and it’s never too late to begin while your children are still at home.
1. Open a savings account
A great way to learn banking basics is to have children open savings accounts in their own names. Kids can learn important financial lessons by watching their accounts grow or shrink depending on how they handle their money. Helping kids get in the habit of saving part of their allowance or earned money is a good building block for future money management.
2. Buy stock
Spark an interest in investing by buying a few shares of stock for your kids. Let your child pick a company they know and are interested in. By doing this on every birthday, for example, the shares build up. Discuss taking dividends in cash versus letting them reinvest etc. They can watch their stock value daily on Yahoo Finance or Google Finance, which can be more fun than some other games!
3. Develop early budgeting skills
As money from birthdays, chores, and ‘earned income’ plus other gifts accumulate, help them budget. Create three jars labeled “Spend,” “Save,” and “Give.” Each time they receive money, they can choose how to allocate that money themselves. Help them stick to their plan when it comes to spending and saving.
4. Lead by example
Parents are role models when it comes to dealing with money. People who are careless with money are more likely to raise children who share their attitudes about finances. However, parents who are responsible with their spending often raise children who grow up understanding the value of a dollar. That being said, sometimes kids have different money styles than what has been modeled in their homes. You may not agree with their choices, but at least you know you’ve provided good modeling and education.
5. Teach delayed gratification
When we have discretionary income, it’s tempting to want to lavish our children with toys and expensive gifts with no strings attached. But kids who earn money through chores, save up for expensive purchases and learn the concept of delayed gratification will be properly prepared when they enter the real world. You may even want to model this concept by talking about how you are saving for a family vacation or special outing.
6. Don’t use money as a reward
Grown-ups don’t earn $1 for eating their broccoli or brushing their teeth. Children should not feel entitled to money as a result of good behavior. Parents should set basic expectations for children’s behavior — without any financial remuneration — and provide money in exchange for chores and other work.
7. Encourage older teens to get a job
A job outside the home can teach teens responsibility, discipline, and time management. Teens are less likely to be careless with money when they understand what it takes to earn it.
8. Use Debit/credit cards as teaching tools
Most banks will allow young teens to have a debit or credit card co-signed by a parent. With small limits of a few hundred dollars, kids can start to have some small measure of financial independence. When the monthly bill arrives, so does a great opportunity to talk about credit, interest, and the importance of paying in full immediately. This creates good habits before college.
9. Set up a Donor Advised Family Fund
Let your kids pick a charity to donate to. Help them with the research and include them in meetings or site visits with local charities if possible.
10. Include them
When your kids become adults, have them meet with your financial advisor to begin a higher level of understanding on investing topics and to not be afraid of the investing “world.”
CFP®, Managing Partner, Senior Wealth Advisor