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How to talk to your children and grandchildren about finances

How to talk to your children and grandchildren about finances

If you consider yourself a financially savvy adult, you probably spend plenty of time reviewing stock market reports and investment options, budgeting your finances and planning for retirement. Do you, however, take time to plan for the financial future of your children or grandchildren? Studies show that parents and grandparents often don’t play a role in financial planning for family members. In addition, most parents don’t talk to their children about finances and saving for future endeavors. Clearly, there is a lot of room for improvement in communicating financial matters to family members.


Do

Do think about more than “stuff” and “things”

Children love toys, and parents love seeing a child’s eyes light up at the sight of a toy. More so than giving children “stuff” and “things” that often take up space and don’t last long, it is important to provide children with solid financial advice that will give them a head start on a prosperous future. Very few people actually teach their children to manage money effectively. Showing them the importance of earning, saving, and budgeting money at an early age is an incredibly valuable gift that will last a lifetime.

Do maintain effective communication about finances

Beginning and maintaining effective communication about finances and financial planning involves more than just talking about what money is and what it does. It is important to teach children and grandchildren about earning money, since this will imitate how they provide for themselves in the future. Talk about the difference between chores – what is expected of children around the house and thus uncompensated – and work that is paid. This will lead to further discussions about how money is saved and spent and gives children a real-life example from which to draw lessons.

Do know that it is never too early to start talking to your children or grandchildren about finances

The earlier you start conversation with your children or grandchildren about finances, the better prepared they will be for the future. For example, you may want to establish a college savings plan for a child and talk to them about the importance of saving for college. This responsibility can be shared between parents and grandparents, who can contribute to the college savings fund for birthdays, holidays, and other special occasions. You can also help your child or grandchild establish a Roth IRA if they are old enough to work. They must have some sort of income of their own, but this is a good investment vehicle and great tool for talking about financial planning.

Do recognize what is age appropriate to talk about in regard to finances

While it is great to start talking about financial planning to children at an early age, remember that what resonates with a 5-year-old is different than what resonates with a middle or high school-aged child. Younger children need to understand the basics of what money is and how it works, while older children will have a better concept of how to earn and save money at a higher level. Of course, this also depends on the maturity level of the child. Seven or eight years old is prime time to really start having serious conversations about money. Start talking about money first and then investing second once they grasp the most basic concepts.

Do reiterate what a child’s parents are doing if you are a grandparent

If you are a grandparent, make sure you are reiterating and supporting what your children are doing with your grandchildren finance-wise. Talk to your children about what types of investments you have made and what you have learned along the way so this can be communicated to grandchildren. If you wish, you can establish a dividend reinvestment program (DRIP). This includes establishing an account of dividend-paying stocks where dividends can be reinvested, and your grandchildren can accumulate additional stock shares over time. This is something that parents can talk to their children about, and they can also contribute to these types of accounts that help save for the future.


Don't

Do not avoid having important financial conversations

Having financial conversations early and often is important to your child or grandchild’s future, so don’t avoid talking about money or saving for the future. Also, don’t avoid talking about the importance of earning money. If children have everything handed to them, they won’t have a desire to learn and be responsible with their finances. A child that has to work and save money will be financially better off in the long run. If you demonstrate that you are responsible with your finances, your children are more likely to be this way as well.

Do not provide children with finances without guidance

You may give money to your children for a variety of reasons – good grades, birthdays, holidays, chores, and more. While this is admirable, don’t give money to them without providing some type of financial guidance as well. Talk about what the money is for, how it should be saved, and how it should be used. Otherwise, children are at risk of wasting money that could be used for useful purposes such as saving for a car, college, etc. Many times, the guidance may be of higher value than the money itself.
 

Do not pursue inappropriate financial planning measures

While there are certain financial planning options that are appropriate for children of varying ages (i.e. a savings account, college savings plan, etc.), there are some measures that are not appropriate for children and should only be considered by mature adults. Avoid stock options, as they are an advanced concept and would likely confuse children. Consider working with a certified financial planner to determine what investment vehicles are appropriate for your children and grandchildren depending on their age and your comfort with various levels of risk.

Do not forget to talk about debt

Debt is a subject often not covered even with parents and grandparents who are starting those all-important financial conversations. Don’t forget to talk about debt, what it does to one’s finances, the different types of debt and how to manage debt to stay on solid financial footing. Today, Americans are carrying quite a bit of debt, including crushing student loans. Children need to see both sides of the coin when it comes to financial planning to avoid harmful debt situations. Debt can often be avoided, but it is easy for children to cave in to the desire for instant gratification. Having conversations about debt is an essential part of a child’s financial education.

Do not let the responsibility of teaching your children about finances fall to someone else

Your children and grandchildren are likely some of the brightest spots in your life, so don’t let the responsibility of teaching them about financial responsibility and planning fall to someone else. If you are not the one talking to them about finances, then someone else who doesn’t hold your same values and views on money may be doing so. Or, your children may depend on what they see and hear in popular media about money. The task may seem daunting, but taking that first step toward discussing finances with your children or grandchildren will help them become responsible and fiscally-wise adults.


Summary
Jumping cartoon

It is never too early to start talking about financial planning with your children or grandchildren. If you help set them on solid financial footing when they are young, your lessons about money will stay with them as they grow. These lessons will impart the value of earning and saving money and will help children learn responsible spending habits that will last a lifetime. Not only are you proving to be a responsible parent or grandparent, but your children or grandchildren will also appreciate this contribution to their lives.


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Patrick W. SimpkinsFinancial Advisor

Patrick brings proven leadership and substantial experience to his clients through more than two decades in executive positions, with the majority of those years in the financial services industry. He co-founded Proximity Financial Partners in 2...

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