Your Kids and Money

Many parents don’t feel comfortable talking to their kids about money. It is a balancing act: on the one hand you don’t want to raise spoiled kids who think money grows on trees, but on the other hand you don’t want them to be totally lost when they grow up. So how do you handle the kids and money talk? This is a major concern with many of our clients. In this blog we will share some of the best (and easiest) ways to start teaching your kids about money today!

Raise your hand if you’d be rich if you had a nickel every time your parents said: “do as I say, not as I do”.

As applicable as this old adage may be in many realms of child-rearing, it can be a double-edged sword when it comes to personal finances.

Here’s why:

Reason #1

T. Rowe Price’s ninth annual Parents, Kids, & Money survey found almost 50% of parents either don’t talk to their kids about money at all, or they only talk about money with their kids once per month. Money ranks high on the list of things parents are petrified to discuss with their kids, along with the birds & the bees, drugs, and even death.

How can we really expect someone to “do as I say” if we rarely (if ever) say what they should do in the first place!

Reason #2

Helicopter-parenting (“do as I say”) hinders kids’ ability to learn. The same T. Rowe Price study found that kids whose parents let them make their own saving & spending decisions actually end up more financially savvy and confident. Simply put, there is no substitute for hands-on experience.

Of course, this is not to say parents should be totally hands-off. There are plenty of financial landmines out there that can do irreparable damage in absence of guidance – for example, credit cards and student loans. But don’t be afraid to let them control their own destiny when it comes to relatively harmless things like spending and saving. If they blow all their money on video games and come to you begging for more, just sit back and say “too bad, not my problem!” What a great learning experience!

Allowing your kids to make some of their own financial decisions can create a virtuous cycle in which they not only build applicable life-long skills, they will also be more inclined to come to you with questions – creating ample opportunity for an educational dialogue.

Reason #3

If you’re self-conscious about your own money habits and your approach is to warn your kids to NOT “do as I do”, chances are they won’t listen anyways. When it comes to money, actions speak louder than words.

The T. Rowe Price study concluded that parents with less-than-ideal money habits tend to pass these traits to their kids (things like bankruptcies, excessive debt, low savings rates, and chronic overspending).  If you want to break the cycle, open up to your kids about your struggles and why they shouldn’t follow in your footsteps.

On the flip-side, if you feel confident in your money management abilities make sure to explain to your kids why you do the things you do.

No matter how noble or loving your intentions – the unfortunate truth is that avoiding conversations about money with your kids about money does not shield them from life’s inevitable financial stresses.

Ready to help your kids get ahead of the curve and develop smart financial habits? Here are some practical ways to talk to your kids about money:
Younger Kids (3-10)
  • Make it fun! Play games like Monopoly, PayDay, and The Game of Life.
  • For the more tech-savvy crowd, try these virtual money-management games:
  • Buy a piggy bank or toy cash register with pretend money and shopping items. This allows them to conceptualize money as a real, finite object, and, especially with the piggy bank, visualize physical money being tucked away for a rainy day or special purpose.
  • If you decide to give an allowance, make sure it is tied to some kind of action – be it chores, good grades, etc. There should be a clear link between work and reward.
  • Don’t bail them out if they overspend. They should know the “Bank of Mom and Dad” is not open for business 24/7.
Older Kids (11 and up)
  • Help them open a checking or savings account (ideally by doing it in person at a brick & mortar bank branch).
    • It might surprise you how much your kids have squirreled away! T. Rowe Price’s survey found 30% of 8-14 year old respondents had more than $500 saved, but 75% either just kept it at home or let their parents hold onto it.
  • For older kids with cell phones, have them link their bank account to a budgeting app so they can track their spending. Each month, sit down together and review the results.
  • Try to use cash as much as practically possible; when using credit cards, explain how credit/interest works so they understand that plastic is not a limitless supply of free money.
  • Involve them in discussions about budgeting for family vacations
  • Ask your investment advisor if your child can come to the next meeting so they can learn the basics of investing.
  • If your child has “earned income” (i.e. wages), help them open a Roth IRA. It’s never too early to start saving for retirement.
  • Avoid making impulse buys in their presence (or altogether, probably)
  • Let them know which charities/organizations you support financially. Ask them which causes they would like to support themselves.

Personal finance is one of those areas where you don’t want your only avenue of education to be the “school of hard knocks”, since one or two missteps can haunt you throughout life. Trust us, we know money is uncomfortable to discuss no matter the audience. But if you start early and come up with ways to talk to your kids about money the benefits are clear: increased financial confidence, a higher tendency to save for retirement & emergencies, and a lower likelihood of accumulating problematic debt.

All parents want what is best for their kids. So start the New Year off right and go beyond the old-school mantra of “do as I say, not as I do”! And who knows, starting to talk with your kids about money may even help you sharpen your own personal financial skills or develop better money habits.

If you’re interested in learning more about how to teach your kids about money, reach out today!

Disclosures1

1Taylor Hoffman is an SEC registered investment adviser with its principal place of business in the State of Virginia. Any references to the terms “registered investment adviser” or “registered,” do not imply that Taylor Hoffman or any person associated with Taylor Hoffman have achieved a certain level of skill or training. Taylor Hoffman may only transact business in those states in which it is registered /notice filed, or qualifies for an exemption or exclusion from registration /notice filing requirements. For information pertaining to the registration status of Taylor Hoffman or for additional information about Taylor Hoffman, including fees and services, please visit www.adviserinfo.sec.gov. The information contained herein is provided for informational purposes, represents only a summary of the topics discussed, and should not be construed as the provision of personalized investment advice or an offer to sell or the solicitation of any offer to buy any securities. The contents should also not be construed as tax or legal advice.  Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the author. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. This document contains information derived from third party sources.  Although we believe these third party sources to be reliable, Taylor Hoffman makes no representations as to the accuracy or completeness of any information derived from such third-party sources and takes no responsibility therefore. Taylor Hoffman is not a Public Accounting firm, and the information contained herein should not be construed as tax advice. Rather the contents included are a reflection of the view and opinions of the author. There is no guarantee that the information provided fits every situation, and individuals should consult their tax advisor for more specifics. Taylor Hoffman is not a law firm, and the information contained herein should not be construed as legal advice. Rather the contents included are a reflection of the view and opinions of the author. There is no guarantee that the information provided fits every situation, and individuals should consult their attorney for more specifics.