By Dave Coen
Most parents want their kids to succeed financially, but what many parents don’t realize is that building a strong financial foundation does not happen by accident; it takes intentionality. If you let this area of parenting slide, there are consequences. You could end up like one of the 79% of parents who provide financial support to their adult children—to the tune of an average of $7,000 a year! (1)
And if you think your child is too young to understand financial matters, think again. Researchers have found that by age 4, kids understand that money can be exchanged for goods, and by age 7, they understand spending and saving and are already forming their own financial habits. (2) If you are unsure how to teach your kids about money, we’re here to help. Here are 6 topics to cover when having the financial talk with your kids.
1. Wants Vs. Needs
In a child’s mind, every want is a need, but if you never teach them the difference between the two, they won’t grow up to understand financial priorities. Give real examples of wants and needs, even as you go about daily life together. Show them wants you’ve had to say no to in order to take care of needs and share when them the perks of having financial discipline, like living with less debt and having the freedom to pursue opportunities.
2. The Importance Of Saving
As adults, we take it for granted that everyone understands the importance of saving, whether you do it or not. But your kids, who have had everything provided for them, may not realize how integral saving is to their financial success. It can be difficult for a child to have the long-term perspective that saving requires, so give them practice with earning and saving money to put toward a short-term or long-term goal they have. It’s also important to show them the impact starting early can have on the rest of their life to motivate them to sacrifice now to gain later.
Below is an example of how money you save can grow when you start saving early – saving $10,000 per year for 15 years early or for 30 years later.
3. The Value Of Generosity
Money can quickly turn into greed or a materialism issue, and the last thing you want is your kids to become money-obsessed in an unhealthy way. Opening their eyes to those who are less fortunate and exposing them to organizations whose sole purpose is to help others will show them that money isn’t just nice to have, it’s something you can use to invest in others. Work with your child to find a local charity that lines up with their values and interests and encourage them to give a portion of their allowance regularly. Its easier to start donating 10% (or whatever your percentage would be) of $100 and growing it from there than it is to start donating 10% of $100,000. They could also learn the value of donating time.
4. Opportunity Cost
When your kids become adults, there will be no lack of opportunities for them to spend or invest their money. But by showing them that everything has a cost and then teaching them how to weigh that cost, you are giving them a leg up and wisdom to turn to when future decisions arise. For example, when your teenager starts dropping hints about wanting to buy a car with the money they have diligently saved and they want to spend every penny getting the best possible car, show them the math of what that money could turn into if invested differently.
5. The Truth About Credit
This generation of kids is growing up seeing their parents wave a plastic card and get goods in return. What they don’t see is the hard work and discipline that goes into earning the money that eventually pays off that card. It’s not surprising, then, that 45% of college students have an average credit card debt of over $3,000. (3) Teaching your kids about credit—both the good and the bad—will help prevent them from making financial mistakes that haunt them for years or decades. While they are still under your roof, impart the discipline and responsibility of debt and take small steps to help them build a credit score. Let them learn the ropes by loaning them a small amount of money and requiring them to pay you back at regular intervals or setting them up with a secured credit card.
On that note, be sure to highlight the consequences of a bad credit score. By putting wants ahead of needs, lacking discipline, or being irresponsible, they could prevent their future selves from buying a house, getting a loan, or finding low insurance premiums. Your kids will still need to learn these lessons for themselves, but at least they won’t be walking into the credit world with their eyes closed.
6. Be Honest
As our kids go through different stages and situations, we constantly throw life lessons at them, such as hard work pays off, to make a friend you have to be a friend, or pick yourself up and try again. But do you know what’s really powerful for your kids to hear? Your own stories of mistakes, successes, and what you learned through it all. Do you wish you had learned how to budget when you were a teenager? Tell them that. Have you had a bad experience with debt? Don’t cover that up. Your kids need to know that they can come to you with money questions, and your transparency will open that door.
Need Some Extra Help?
If you feel overwhelmed with the task of teaching your kids about money, you probably agree with the 72% of parents who wish they had someone to help them. (4) Imparting financial wisdom to your kids is a challenging process that takes years. The important thing is to start the conversation, even if you don’t feel prepared. As your child grows and needs more in-depth financial knowledge regarding things like 401(k)s, taxes, mortgages, or inflation, we can help. At SageView Advisory/College Planning America, we want to partner with you to equip your children for a bright financial future. Find out what we can do for you and your kids by getting in contact with us at dcoen@sageviewadvisory.com or calling 800-814-8742.
About Dave
Dave Coen is a Financial Advisor with SageView Advisory and the CEO of College Planning America. Along with his retirement financial industry experience, he is a College Planning Specialist. He works closely with individuals and families to provide them comprehensive financial planning that addresses all elements of their financial picture. Learn more by connecting with Dave on LinkedIn.
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This material is designed to provide accurate and authoritative information on the subjects covered. It is not however intended to provide specific legal, tax, or other professional advice. For specific personal assistance, the services of an appropriate professional should be sought.
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(3) https://www.parentmap.com/article/more-teens-dealing-with-debt
(4) https://www.ml.com/the-financial-journey-of-modern-parenting.html
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