Discussing Money Matters with Your Children: A Financial Advisor's Guide on Discussing Finance Concepts at Each Developmental Stage
Building a Strong Financial Foundation in Children: A Guide for Parents
Financial advisers recommend that parents take an active role in educating their children about money management and investing, with the aim of passing down financial values and building a solid foundation for lifelong financial literacy.
Young Children to Pre-Teens
For young children, the focus is on teaching the value of money through earning, distinguishing needs from wants, and practising delayed gratification. Parents can give allowances tied to chores, helping children understand that money is earned, not just given. Discussing needs versus wants can help children understand the importance of essential purchases and how this affects their saving goals.
Practical experiences, such as counting money, making purchases, and receiving change, are valuable for reinforcing the reality and limits of money. Involving children in everyday money decisions, such as explaining why one product is chosen over another or why certain purchases are saved for, models thoughtful spending habits.
Teenagers to College-Age
As children grow older, the conversations about money become more detailed, covering budgeting, saving, and giving. Introducing investing concepts, such as the benefits of investing early and compound interest, can help prepare them for adult finances. Encouraging them to manage real money, such as through apps for tracking spending or managing their own bank account, allows them to practice financial responsibility.
Strategies by Age Group
Toddlers to Early Elementary: Use books with financial stories, introduce saving/spending with jars, and play money-counting games.
Elementary to Pre-Teens: Give small allowances tied to chores, teach price comparison, involve in small purchases, and use cash for hands-on practice.
Teenagers to Young Adults: Discuss budgeting, saving, and investing, use apps for tracking money, encourage managing bank accounts, and plan for college funding.
The Importance of Open Conversations
The study conducted by Ameriprise Financial revealed that 72% of parents take personal responsibility for teaching their children about money. The study also showed that parents are seeking guidance on educating children about investing, passing down financial values, and considerations for leaving an inheritance.
The Kiplinger Building Wealth program features financial advisers and business owners from around the world who share retirement, estate planning, and tax strategies. Most of the experts in the Kiplinger Building Wealth program have certifications including CFP®, ChFC®, IAR, AIF®, CDFA®, and more.
Parents may discuss the risks and opportunities that come with investing with their adult children. A first job post-college is a good opportunity to discuss steps children can take to establish a strong financial foundation. Many parents involve their children in family financial decisions to teach money values and principles.
Supporting Children's Financial Goals
Parents often help their adult children fund goals and milestones such as a wedding, a down payment on a home, and vacations. It's important to clearly communicate whether financial contributions to adult children are gifts or loans to avoid confusion or tension. Generosity towards adult children can put parents' financial futures at risk if it means sacrificing retirement savings or other important long-term goals.
Nearly 9 in 10 parents (89%) plan to pay for some portion of their children's college education. Nearly all (97%) of the parents surveyed by Ameriprise Financial talk with their children about finances to some degree. It's important to clearly communicate college contribution decisions to children so they can make informed choices about taking on student loans or finding other ways to cover the bill.
Seeking Professional Guidance
Financial advisers can help parents take important financial steps to protect their children's futures and their own. These experts in the Kiplinger Building Wealth program never pay for inclusion on the site. The Ameriprise study found that nearly 9 in 10 parents working with a financial adviser found the advice helpful in making financial decisions related to their children.
It's crucial to check the records of financial advisers through the SEC or FINRA to ensure they are qualified and trustworthy. With the right guidance and open conversations, parents can instil financial responsibility and positive money habits that will benefit their children for a lifetime.
- As part of their duty to pass down financial values and build a strong financial foundation, parents can guide their children through education-and-self-development opportunities related to personal-finance, such as learning about budgeting, saving, and investing.
- In the pursuit of career-development, college-age children can be encouraged to practice financial responsibility by managing real money through apps or managing their own bank account, which will prepare them for financial independence and a stable lifestyle in adulthood.
- By establishing open conversations about money matters with their children, parents can set an example for healthy family-dynamics in terms of financial decision-making, while also considering the importance of relationships and legacy, as they plan for college funding and potential inheritance.
