For many parents, talking to children about wealth management can be surprisingly difficult. Indeed, some studies indicate that 90% of family fortunes don’t survive the third generation—a possible ripple effect of this reticence about discussing finances, according to The Wall Street Journal. Rather than just maintain the status quo, you can seize the opportunity to impart some important values about money to your children.
If Not You, Who?
Teaching children how to be conscientious and generous with money they earn or inherit will not happen without parental involvement. But if that doesn’t happen, there’s no lack of outside influences that will rush in to fill the void left by mom and dad.
One potential influence is advertisers, who bombard kids with the message that the only thing to do with money is to spend it. Another factor that shapes a child’s financial values is their friends. Thanks to peer pressure, children may get their values from their peer group if parents don’t step in.
Fortunately, there are a number of tools parents can use to impart financial responsibility to their children. For example, one woman sat down with her daughter and made a list of all the things a 13-year-old girl would need during the course of a year, such as a winter coat, three pairs of tennis shoes, socks, movie tickets, etc.
Then, after estimating a total price for all those items, the woman divided it by 12 and came up with a monthly allowance that her daughter could spend however she saw fit. On the first day of every month, she would deposit that amount into a checking account for her daughter and she gave her a debit card.
With this approach, the mother was able to encourage her daughter to take complete responsibility for her own spending. The daughter had limits, but she also had independence, which meant that she had to deal with the ramifications of her financial decisions.
However, a child’s financial education should not begin in their teenage years; by then parental influence can be at an ebb. At a younger age, kids are more likely to internalize what parents say.
A good way to start is by giving children an allowance, one that is less formalized than may be necessary later in life. An allowance, whether weekly or monthly, should not be tied to performing household duties. Rather, it should be money set aside for a child to do everyday things. Having an allowance is a good way to start teaching children how to handle their finances responsibly and independently.
The Value of Giving
Philanthropy is another topic that not only provides an excellent entrée into a discussion about family wealth, but also can be used to instill important values in children.
Each January, one family gets a box where they can put every solicitation from any charity they receive during the year. Toward the end of the year, after deciding on a total amount to donate, they open up the box and carefully examine the organizations soliciting money. As a family, they decide where they’re going to donate.
It’s also crucial for parents to remember that not all communication is verbal. Always keep in mind that your kids view you as a role model, and how you behave with your own money will have a tremendous effect on your children’s attitudes. You can’t go out and frivolously spend your money and then expect your kids not to do it. Done right, your lessons will be taken to heart and incorporated into your children’s lives
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