Educating children about financial independence and responsibility is essential to supporting their individual growth and future autonomy. In particular, many high-net-worth individuals often want to ensure that by the time their children receive an inheritance, they are fully equipped to effectively manage their finances. Financial education starts at home from an early age, making it critical that parents teach their children about positive financial habits. This is best done by example via open communication and encouragement from the parents.
Show, Don’t Tell.
When teaching good money habits, it’s important for parents to recognize that children are more likely to adopt practices that they’ve witnessed, rather than those they are simply told about. By giving them first-hand experience and inviting them to share in their own process of both small and large financial decisions, parents can demonstrate to children a solid framework for mindful spending and saving habits for their future.
We have identified four ways that parents may wish to show their children effective money management:
- Openly share both your own prudent and thoughtless spending habits
Be vulnerable with your children about spending choices before and after they have occurred. By showing that you can be thoughtful and reflective about your own purchases, they will gain a better understanding about how to be mindful with their own spending as well. Children learn from our mistakes and successes when we include them in the journey.
- Show how and why you delayed a luxury purchase or saved for it over time
It’s important for children to realize that instant gratification isn’t always possible or wise. Whether it’s the top-of-the-line sports car you’ve been eyeing or an extravagant family vacation, share with them why these types of purchases can be postponed and how it’s important to take your time with larger financial decisions. Include an explanation of how decisions early on in your education or career allowed you to save first and make luxury purchases later.
- Share your progress toward short-term savings goals and long-term investment goals.
Inform children about your family’s savings goals and share with them how you plan to achieve these goals. Throughout the process, you may wish to use a separate banking account and share the statements to help them clearly see how the savings have grown over time through your contributions. Include your children in your long-term investment successes and missteps too.
- Include them in philanthropic interests
Some parents have philanthropic values and wish to Instill a sense of stewardship about wealth to keep it in a broader context. Inviting children to participate in philanthropic interests or volunteer activities can help them understand that money works beyond simple consumerism and can be used to support causes that are important to you and your family. This deeper awareness of finance can help reshape how they see monetary value. For example, attending an entertainment event can be framed in the context of supporting the arts and bringing a community together.
Navigating Finances at Different Life Stages
Financial education will look different at various stages of a child’s life as they gain greater awareness of the world around them. We believe it’s important to begin financial education early. You may consider starting roughly between the ages of 4-8. At this time, parents can introduce children to personal income by paying them for completing basic household chores. It’s important to use physical money and small denominations whenever possible, as this tangible expression of value is key for young children.
From ages 9-13, parents may choose to open a debit card or savings account in their child’s name and continue to pay more for more advanced household chores. Parents can be joint owners with the child on their account. This is the time for parents to educate children on the differences between “wants” and “needs,” and the importance of smart consumerism as children are bombarded with advertisements. Consider allowing the children to make a plan about how much of their income they save, spend, and give.
At ages 14-17, it’s important that parents insist on summer employment outside of family household chores. Parents may also consider funding a Roth IRA for the child to encourage saving. You may consider matching their income up to the Roth contribution limit if that fits in your overall gifting strategy. With these new savings, parents can work with their children to understand various investment strategies and the importance of a diversified portfolio.
At ages 18 and older, when the child is transitioning into adulthood, it’s important that parents continue to insist on summer or part-time employment. You may wish to set up advisor-facilitated meetings about investments, if appropriate. As their savings grow, parents may want to introduce their adult child to the family’s trustee and attorney to set up their own will and powers of attorney.
By making financial literacy a part of everyday conversations, parents can prepare their children for future financial security and independence and can prepare their children to be responsible and mindful about spending decisions before they receive an inheritance. If you would like to learn more about this topic or discuss how you and your family can achieve your personal financial goals, please contact Curi Capital at 984-202-2800 to speak to one of our experts today.
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The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein.
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