A majority of parents feel uncomfortable talking to their kids about money.
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.
T. Rowe Price’s ninth annual Parents, Kids, & Money survey found almost 50% of parents either don’t talk to their kids at all about money or only talk about it 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!
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 that can do irreparable damage in absence of proper guidance and counsel – 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.
Even if you tell your kids not to “do as I do”, chances are they won’t listen anyways. 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. Or on the flipside, 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 your intentions – if you aren’t having conversations with your kids, the reality is you are not shielding them from life’s inevitable financial stresses.
So what can you do to get started – or to further deepen conversations with your kids about money? Here are some ideas:
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 follow you throughout life. We understand. Money is uncomfortable to discuss no matter the audience. But if you make a habit of talking to your children 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.
As parents, we all want what is best for our kids. So start the New Year off right and go beyond the old-school mantra of “do as I say, not as I do”!
If you’re interested in learning more about these ideas, or financial planning matters in general, please reach out to start the conversation today!
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