When you have a child, there are so many things you want to teach them – how to walk, how to talk, how to clap, how to jump, how to kick a ball, how to color a picture, how to be a good friend. The older they get, the more nuanced the lessons become – how to do algebra, how to manage time, how to make wise choices.
As an advisor, I believe all parents should teach their children to have a healthy relationship with money. Whether you are still preparing to start a family or you have adult children, teenagers, or young kids, there is something you can do today to build your child’s financial foundation.
Here are four ideas for how to help your children have a healthy relationship with money throughout their lives.
1. Build your financial foundation before kids
It’s important to financially prepare for a family, but beyond dollars and cents, developing your emotional maturity around money will help you set a good example.
What do you need to learn? Where can you grow your mindset? Be honest with yourself – any concerns you have will likely intensify when you have kids.
An advisor can help you get on track, answer your questions, and offer insights about cultivating strong money habits before you start a family.
Even if you already have kids, you can always rebuild your financial foundation.
2. Collaborate with your young kids
It is important to talk early and often about money and family finances. You are not doing your children any favors by hiding your money decisions.
Early in life (about the time your kids quit putting coins in their mouths), it is important to teach that money is a finite resource and that financial decisions always require trade-offs.
For example, when our children were in grade school, we would lay cash on the kitchen table to show what we had to spend for different activities (McDonald’s, roller skating, Baskin Robbins ice cream, trip to the water park, etc.) As the kids decided how to spend the day, we would subtract the appropriate dollar amount from the pile.
This exercise was a tangible way to show how a finite resource is consumed. Typically, they could choose lunch at McDonald’s and a day at the waterpark, but no ice cream afterward, or they could get McDonald’s, skating, and ice cream for the same amount of money.
Instead of running the numbers yourself and bringing your kids along for the ride, guide them through the decision-making process and give them some autonomy over the outcome.
At this stage of life, your kids depend on you for financial resources, but by introducing structured collaboration, you encourage them to think about what it means to have and use money wisely.
3. Empower your teenagers
As your kids grow, help them understand how to earn and allocate their money. Be open and willing to talk about your good and not-so-good money decisions.
Growing up, our children always received a weekly allowance. A portion was unconditional, just money to spend, while another portion depended on the kids completing their various chores. We wanted to establish a relationship between work and earnings early on.
As the kids moved into middle school, we increased their allowances to cover school lunches. Once again, we wanted to empower them to make good money decisions, teaching them to prioritize their choices so they had enough for the essentials.
When our kids started driving, we added enough gas money to cover the drive to and from school and various family errands. They had to cover additional gas money and other expenses, so they babysat, mowed lawns, worked in retail stores, etc., to earn money through high school and college.
4. Know when and how to help your adult children
As adults, most kids are responsible for their own decisions and assets, but despite the best counsel, they may mishandle their money or fall on hard times.
When it comes to knowing when and how to help your adult children, distinguish between an acute need and a chronic, ongoing condition.
I have helped clients work through a sudden money emergency for one of their children. In these situations, we:
- Measure the impact of covering the emergency on the client’s current financial plan
- Discuss the expectations around paying back any short-term loan
- Talk about the impact on family dynamics if a loan doesn’t get repaid
I also have a few clients whose adult children chronically struggle with money. Dealing with these situations can be emotionally draining, but you often need to exercise some tough love.
You don’t have to do it alone – a good advisor can stand in the gap. Not only can they measure how continuously helping your children will impact your financial well-being, but they can also act as a buffer.
On more than one occasion, I have directed my clients to tell their children, “I would like to help, but Steve has me on a tight budget right now. You will have to call him to see if I can afford to give you any more money.” (I have yet to receive one of those phone calls.)
Knowing when and how to help your adult children is tricky, but having a financial advisor who can be honest about what you can and can’t do is invaluable.
How to Help Your Children Develop a Healthy Relationship with Money
For kids at all stages of life, remember the following:
- Model good money behaviors, and be open about your family finances.
- Give your children the opportunity to participate in money decisions appropriate to their ages.
- Live with an open heart, an open mind, and open hands. Teach your children the value of charitable giving and helping others.
- Learn to distinguish between chronic money mismanagement and acute, unexpected money needs. When you do help out, set clear expectations for repayment.
- Develop your own emotional maturity around money, and help your children do the same.
- Realize that every child is different and that you cannot always treat them the same when it comes to money issues.
- Talk with your financial planner about your family’s money dynamics. They have likely seen similar situations and can offer wise counsel.
If you would like to talk to Steve about how to help your kids develop a healthy relationship with money, reach out at [email protected].