If you’re like most parents, the minute you hold your new child in your arms, you start thinking about all the things you’re going to do with them and the lessons you will teach them along the way. Most parents want to see their kids grow up to be responsible, empathetic, independent, and polite. (1) And while no one will argue the importance and value of these traits, have you ever thought about putting financial literacy at the top of the priority list as well?
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 (ages 23-35) were able to answer the first three financial literacy questions of the study correctly, and a mere 8% answered them all correctly. (2)
Just giving your kids a piggy bank is not enough. 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 grow up.
Actions Speak Louder Than Words
If you’ve spent any amount of time with children, you know 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. (3) 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
Since many areas of personal finance aren’t visible, sometimes a silent model isn’t quite enough. That is why it is vital that you 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. (4) 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. (5) Many parents even say they would rather discuss drugs or sex with their kids than money. (6)
But how are your kids going to learn about money if you avoid talking to them about it? Most parents don’t expect their kids to understand the importance of denying drugs just because they have never seen their parents shoot up. That is because 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 now, while they are young, they are far more likely to keep coming to you for advice or assistance when they get older.
Give Them Hands-On Practice
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. (7) Most people have to actually do what they are trying to learn in order to really get it.
On a practical level, 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 while they are young, when the consequences aren’t as severe.
We Are Here To Help
Imparting financial wisdom to your kids is a challenging process that takes years. 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.
Here at Newbridge Wealth Management, we believe that every child can and should learn critical financial lessons at a young age that will set them up for future success. We want to provide you with the tools to help you on this journey. Click here to access our online calendar and easily schedule a free 15-minute introductory phone call, or you can email us at firstname.lastname@example.org or call 610.727.3960 to schedule a meeting today! Together we can make sure that your children will enter adulthood with the knowledge necessary to build a secure financial foundation for their bright future.
Vincent R. Barbera, CFP®, MSFS is a managing partner and co-founder of Newbridge Wealth Management, a private financial counseling firm located in Berwyn, Pennsylvania. Believing in a patient, disciplined approach to investment management that delivers value and peace of mind, he utilizes a process-driven approach to financial planning that provides comfort and clarity to his clients’ long-term goals. Along with a bachelor’s degree in psychology and business, he has a master’s degree in business and financial planning and Certified Financial Planner™ designation. Learn more by connecting with Vincent on LinkedIn, or send him questions at email@example.com.