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 that those are valuable traits to model and impart, have you ever thought about putting financial literacy at the top of the priority list?
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 (age 23-35) were able to answer the first three financial literacy questions 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 eight out of ten 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
Sometimes a silent model isn’t quite enough since many areas of personal finance aren’t visible. That is why it is critical to 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 kids going to learn about money if you avoid talking to them about? Most parents don’t expect their kids to understand the dangers of drugs just because they have never seen their parents shoot up. 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 when they are young, hopefully they will still come 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 do something to really learn it.
On a practical level, give your 5-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 10-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 when 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. So, 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 Pilot Wealth Management, we believe that every child can 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. Book your free introductory meeting now! Together we can make sure that this next generation enters adulthood with the knowledge necessary to build a secure financial foundation for their bright futures.
Chris Rueger, AAMS® is the President and Founder of Pilot Wealth Management, a fee-based only financial advisory and investment management firm. With nearly two decades of experience, he serves as a financial planner who brings financial advice and investment guidance to families serious about their financial future. With all his clients, he strives to instill in them peace of mind that their life savings are being handled appropriately so they can maintain their desired lifestyle. Based in Ann Arbor, Michigan, he works with clients locally and across the country. To learn more, connect with him on LinkedIn.