How to Talk to Your Kids about Money

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Families with significant assets have concerns about passing them along to the next generation. Will the next generation be responsible, or spend the family fortune in a short period of time? The goal is to raise financial stewards, but many times parents are challenged by how to approach it, especially when their kids are accustomed to being provided a certain lifestyle. Start the conversation, set clear expectations and lead by example.

What Does your Child Know about Money?

You may assume your child or children understands basic money concepts, but you can’t be sure until you talk about it. It is essential to be transparent and discuss money throughout your child’s life. Doing so helps foster a healthy relationship with money and encourages wealth stewardship. Children are keen observers and will notice signifiers of wealth, such as the type of house they grew up in and family vacations they went on. If parents don’t start the conversation themselves, children may draw their own conclusions.

Have Age-Appropriate Conversations about Money

Implementing a strategy while children are young and building upon those conversations as they age can create a strong understanding of the value of money and how to manage it:

Age 5-9: Talk about what money is and your family’s values about wealth. This may be a good age for the introduction of a small allowance.

Age 10-14: Talk about budgeting and investing basics. Give your children an allowance to teach them about budgeting. You can show your child how to save their money for an item they want, such as a new toy or video game. Introduce games and activities that support the conversations. At this age, it may be appropriate to include the family story in the conversation, such as a family business, what family member started it and how they became successful.

Age 15-17: Focus on financial literacy and managing money. For example, practice setting a budget, discuss the pros and cons of credit cards, teach your children how to read a paycheck, and emphasize the value of saving over time (compound interest). 

Note: If wealth education workshops and family meetings are appropriate for your family, this may be a good age to start including children. You might include your children in a breakout group that reinforces the conversations you are already having about money basics. An experienced consultant specializing in family meeting facilitation or a wealth advisor can help you decide if this is appropriate for your family.

Age 18-21: Talk about personal investing and personal financial goals. Have deeper discussions about the family enterprise/business. This is the age range when many children head off to college or move out, so it’s a good time to revisit core budgeting and appropriate use of credit cards, savings rates, etc. Introduce your child to personal insurance (such as auto and renter’s insurance) and basic estate planning documents (such as simple wills and medical directives). Consider smaller monetary gifts (under the annual exclusion) that your child can use to buy stock or ETF shares to help them learn about investing.

Age 22+: Discuss renting vs. buying a home and philanthropy. Have deeper discussions on insurance needs (life, property and casualty) and basic estate planning needs. Revisit savings rates and personal investing topics. Make introductions to your family financial advisor/planner.

Make the Conversations Engaging & Fun

Use activities and games to make conversations about money relevant and exciting:

  • Help set age-appropriate goals. For an older child, this might mean getting a car. Walk your child through the financial considerations of achieving that goal. In getting a car, considerations include down payment, financing options, and what to look at (interest rate, prepayment penalties), monthly payments, insurance, gas and maintenance costs.
  • Use games to make learning about money fun. Some online examples are “Build Your Stax,” “Credit Clash,” and “Financial Football.” “Cash Flow” is a board game by Robert Kiyosaki that’s another engaging tool, geared more toward ages 18+.
  • Invest in your child. Rather than buying your children everything outright, consider teaching them about the value of saving and working for things they want. For example, a “match” program: If there is an item your child wants, such as a new computer, agree to pay for half of it if your child saves the other half and gets good grades.

Set Clear Expectations

Before your children head off to college, communicate the financial support you intend on providing. Discuss what you will pay for and when. For example, you may decide to pay for undergraduate education but not graduate school. As your children reach the age of majority, ask them to visualize the future lifestyle they desire and have them outline how they think they can accomplish those goals. Help guide them in setting realistic goals and timelines for accomplishing them.

Lead by Example

Clearly define your values about money so that when you have conversations with your children about money, they see you practicing the values you discussed. Both parents should agree on their ideas about money before engaging in discussions with their children. For example, consider how much each parent feels is appropriate to spend on clothes, holiday presents, and college expenses. A questionnaire for each parent to complete with a follow-up discussion of results with a financial advisor/planner can help ensure that values are aligned.

Take care to avoid making offhand remarks about money that don’t truly reflect your values.  Be consistent with your words and your actions. On that same note, walk your talk.  Put your words into action, e.g., if you tell your children philanthropy is important, make sure you engage in philanthropic activities and include your children in these activities.

Lean on your Advisor

Family is incredibly important and raising responsible children is something most– if not all–parents desire. Money can be a difficult but necessary topic to address. Helping our clients and other parent’s tackle a difficult conversation is a helpful tool, giving them the confidence and peace of mind that they are raising adults who are fiscally responsible and act as financial stewards.  Engaging your children in these conversations is a long-term process and not a single event. These discussions should happen throughout your child’s life. If you would like to learn more, contact a Freestone Client Advisor.  

Important Disclosures: This article is provided for informational purposes only and you should not be relied upon for any legal advice or recommendations. The intention of this article is educational, and it is intended only to discuss a few limited aspects of generational wealth. This article is not a comprehensive or complete summary of considerations regarding its subject matter. The third-party hyperlinks included in this article are independent of Freestone and Freestone affiliates. Freestone did not approve or endorse any of the products provided by the third-party hyperlinks. Each individual is in a different situation and has different items to address, and the options in this article are not appropriate for everyone. Please consult your Freestone client advisor regarding options specific to your needs.

Posted By: Stephane d'Ippolito, CFP® Managing Director of Financial Planning & Mairin Murphy, CFP®, Associate Financial Planner