1. WHEN DO I BEGIN?
Children have some concept of money by age 7. They understand that money buys things, but they may not understand what else money can be used for or how you acquire money. Parents should work together to develop a learning plan to teach common values and demonstrate responsibility when it comes to earning, spending, saving and giving.
Parents should first make sure they are on the same page. We often recommend couples work with advisors to determine and document your values. Attitudes toward productivity, stewardship, philanthropy, spending, saving, and borrowing should be discussed and refined into a values statement that can be used as a goal or set of goals.
When is it too late to teach children about money? The older our children get, the more difficult the process. This is partially due to the fact that the parent may have less control and the child may have more distractions or temptations and must “unlearn” negative behaviors. The important news is that it is never too late to encourage people to be accountable.
2. WHAT DO I TEACH?
Once goals are determined and set, identify certain skills that you wish to teach. These are the skills that will equip your child to develop good values and become financially literate. Consider including skills such as:
1. How and when to talk about money
2. How to save
3. How to spend
4. How to budget
5. How to invest
6. How to borrow
Personalize this list by considering the level of wealth and discussing subjects such as philanthropy and entrepreneurship. Explain the difference between “I need” and “I want.” And communicate that all family members contribute to family financial health—not just by work but also by the use of resources—and that each child’s opinion will be considered when making family decisions.
3. HOW DO I TEACH IT?
While parents generally are a child’s most important role models, grandparents and other close family can provide reinforcement. As your child ages and matures, you can enlist the help of your advisors. For example, UBS provides age-appropriate financial education videos and workbooks.
Setting an example is most important. Another simple way to get started at a young age is the “spend some”, “save some”, “give some” jars. Let them participate in deciding how much should go in each. Illustrate starting with 10 dimes (or dollars). Discuss what each jar is for and ask how many dimes do you want to save for the future, how many do you want to spend now, and how many would you like to use to help others?
4. WHAT ABOUT AN ALLOWANCE? A JOB?
An allowance is one of the most common and most effective ways to teach children about money: both the good and the bad. Parents should keep in mind that an allowance is a teaching tool. Determine the amount by discussing and writing down what it will be used for. Revisit the budgeted amount annually. When children are old enough to grasp the concept, give them input into determining the amount of their allowance. Again, write down what it will be used for and have them rank goals in order of importance.
Many child experts recommend not paying your child for routine chores that they are expected to do. As children get older and express an interest in earning more money, consider making available additional jobs around the home for which an agreed upon amount can be paid.
Earning money outside the home can provide children with a sense of freedom and pride. Help children find age-appropriate work that will not interfere with school. Offer to help manage their earnings by assisting them in opening an account at an appropriate financial institution.
5. HOW DO I TELL MY CHILD ABOUT THE FAMILY WEALTH?
Wealthy parents have the additional burden of communicating information about family wealth. Many parents struggle with the fear of encouraging children to believe that the family’s wealth is an entitlement. As a result, discussions are often avoided all together. Children learn that talking about money is taboo.
Actually, consistent communication is the key to letting children know that the family is financially fortunate. Children of any age can be reminded that the family is not simply entitled to wealth; it was earned as the result of someone’s hard work. The detail of that message should be determined by the child’s age and level of maturity. It can be hard to say no, especially if you CAN afford it. If your child wants something expensive that you do not feel is appropriate, instead of saying, “because I said so” say, “because our family chooses to use that money to help others”. Then engage them in a conversation of what good it can do. Even let them choose a cause which to donate. By shifting the focus, you are reinforcing your family values.
Teaching children about money and giving them the skills to deal with the benefits and burdens of wealth may be the most valuable inheritance you can provide.
Families are unique and so are children. Making a financial education plan is important But the best way for them to learn is by example.
Content from UBS Advanced Planning Group.
Donis Smith, CFP®, CDFA® oversees the financial planning process for Decision Point Wealth Consulting and works closely with clients and their families to assist them in reaching their fiscal goals for the future. In addition to holding a Certified Financial Planning Professional designation, she is a Certified Divorce Financial Analyst. She has years of experience assisting women in navigating through the financial challenges that can occur during and after divorce or widowhood.
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