If you’re like many high-net-worth parents, you find it challenging to speak with your children about money. From wonderful vacations to private schools, when children grow up having access to so much, how do they also learn to appreciate money?
Teaching children about money is a common challenge RVP clients face. The more money individuals have, the more fearful they are to have conversations about money with their children. Why is this the case?
Often parents put off having conversations about money, because they are afraid of revealing too much about their own financial situation and influencing the life choices of their children. They fear is that if kids know their parents are wealthy, they won’t try as hard in school or at life, because mom and dad can afford to take care of them.
Facing the Challenge of “The Money Talk”
Children learn so much in life by simply watching what goes on around them. What’s complicated about kids and finances is that earning, saving and even spending money tends to be relatively invisible.
A child might understand that the credit card on the table and the slip mom or dad signs is the way the restaurant meal gets paid. But they’re far less likely to understand how that payment is fulfilled and where the money comes from. That’s why it’s important to practice intentional parenting when it comes to money matters.
These lessons can start at an early age and become increasingly complex during the teen and early adult years. An added benefit to talking to your children early and often about money is that it helps prepare them to be responsible wealth stewards as adults.
Here are my top six recommendations for helping children learn about money.
1. Tell Them You Have It
Not much gets past children, so it’s best not to evade the subject of wealth entirely. By the tween and teen years, you can have a conversation about how fortunate your family is, pointing out the vacations you’ve taken, the good schools they attend and the fun things you get to do together.
Is there a story about how your wealth was accumulated? Kids appreciate a good tale, such as how grandpa started with nothing but by working very hard over many years managed to earn a good deal of money. It’s also a way — particularly for families with intergenerational wealth — to teach kids that it takes hard work to earn money.
It’s not important, or in most cases even appropriate, to tell children how much money your family has. But by being honest with children that they have money and why, it gives them the opportunity to understand and appreciate this aspect of their family life.
2. Teach Them the Value of a Dollar
Having money doesn’t mean you aren’t judicious about how you spend it. Most consumers like to be smart about their purchases and appreciate getting the best value when it comes to spending.
One way to communicate value to children is to think about what’s important to you when making purchases and share this information in an age-appropriate way. For example, during a trip to the grocery store, you could talk about why you’re choosing one item over another. “I’m stocking up on paper towels because they’re on sale this week” or “I’m buying apples because they’re in season right now, which means they’ll taste better and cost less than strawberries.” Older children can learn about money by reading shelf tags and see which items are a better to buy or why bulk purchasing can be more economical.
Another way that some parents talk about money is by including children in vacation planning. Children suggest locations and parents discuss the benefits — including costs — of one vacation versus another.
3. Consider an Allowance
Children who grow up in wealth are not likely to hear “we can’t afford that” as a reason they can’t have something. Therefore, it’s important to find other ways to help them understand limitations and boundaries.
One way to learn this firsthand is with an allowance. If children have a set amount of dollars and they spend it all at the beginning of the week or month, when they don’t have enough money to go to the movie with a friend, they learn the importance of budgeting. These lessons, while painful for parents to watch, are better to learn early before children are older and out on their own.
On a very small scale, this can help prepare kids for wealth stewardship later in life, because they are learning that even when it seems like a lot of money, it can deplete quickly if they’re not careful with it and use it in an efficient manner.
4. Introduce Savings at an Early Age
One way to encourage children to save is by setting aside a portion of their allowance. I put saving into practice at home when my eight-year-old son receives money at holidays and birthdays. We encourage him to save it. He knows that six months from now when a new toy comes out and mom and dad don’t want to buy it for him, he’ll have the opportunity to buy it for himself.
While there’s no one-size-fits-all approach to teaching children about money, instilling the importance of saving also helps prepare children for wealth stewardship one day, because they’re learning that if they deplete their savings, they won’t have it for the future.
5. Consider Cost-Sharing on Big Purchases
It’s natural to want to share your wealth with your children, providing them with things that bring them joy — whether it’s the latest smartphone, a new bike or a car on their sixteenth birthday.
These types of larger purchases provide an opportunity to teach children about working for what they want. It could be that the child saves money to pay for a percentage of the purchase. Even if it’s a small portion, it can help a child learn to appreciate the role of savings and the impact it can have. Or perhaps the parents buy the car, with the understanding that the child pays for insurance, which can encourage savings or a part-time job. This give kids insight into how the real world works.
6. Set Expectations for Financial Independence
I’m running into more families with young adults who are not as engaged in getting a job, and their parents feel obligated to keep paying the bills for them. My advice? It’s important to understand your limits for how much and how long you’ll support your child once they’re through school. Communicating these expectations early is critical, so both parents and children can prepare for a successful launch into adulthood.
It’s also important for parents to be proactive at an early age to help ensure children are learning about important money values. It’s easy to take a wait-and-see approach in wealthy families because the tough conversations about money aren’t as likely to happen organically. That’s why it’s even more important to start giving children basic tools so they can become financially responsible adults and, hopefully one day, responsible stewards of the family wealth.
Conclusion: How Can a Financial Advisor Help?Complex financial planning conversations are made easier with advice from a valued-partner. While a wealth counselor can’t teach your children about money on your behalf, we can walk you through how and when you should broach these topics with your children. And, when the time comes, we’ll be there to ensure your adult children are making fiscally responsible choices with their wealth. Contact us today to learn more about Relative Value Partner’s services.
About Jeff Fosselman, CPA, CFP®, JD
With more than a decade of experience in the industry, Jeff Fosselman is instrumental in delivering financial planning strategies and counsel to high-net-worth individuals. As Senior Wealth Advisor for Relative Value Partners, Jeff provides comprehensive advisory services in estate planning, income tax planning, cash flows, asset allocation and other financial planning areas.
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