By: David Thatcher, CFP®
Most of what we do as parents is to help our kids succeed when they are out on their own. A popular idea these days is that parenting children, even young ones, is really just “raising adults.” We teach them respect and responsibility and equip them with problem-solving skills, but to be a well-balanced, thriving adult, they also need a strong financial foundation. Teaching them the practical and philosophical aspects of money management can give them a leg up no matter what they do with their lives.
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 (*1). 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.
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 with them the perks of having financial discipline, like living with less debt and having freedom to pursue opportunities.
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.
Money can quickly turn into a greed or materialism issue, and the last thing you want your kids to become is 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.
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 wisdom for future decisions. 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, show them the math of what that money could turn into if invested differently.
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 (*2). Teaching your kids about credit—both good and 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.
As our kids go through different stages and situations, we constantly throw life lessons at them, like 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.
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 (*3) . 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 Cypress Wealth Services, 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 contacting one of our offices today.
Cypress Wealth Services is an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. Cypress Wealth Services is comprised of professionals with diverse backgrounds and extensive experience and qualifications. Cypress Wealth Services is uniquely qualified to serve a broad range of client needs. Their experience and expertise act as a foundation for their client service process, The firm uses The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With offices in Palm Desert, CA, Tustin, CA and Anchorage, AK, the firm serves clients across the country in Wealth Management Services, Fiduciary Services, 401(k) Design and Management, Investment Reporting Services, Financial and Retirement Planning and more. For more information: visit www.CypressWS.com or call 760.834.7250.