By: Vanessa McElwrath, CFP®, Wealth Management Partner
Just this past month, I made my annual trip to Washington, D.C. for my Godson’s birthday. Not really knowing what many 8-year-old boys are interested in these days, I decided to play it safe and give him a card with $50 tucked inside. I actually thought this was a fairly generous gift for an 8-year-old, right up until he opened up a card stuffed with $500 cash from a very generous grandparent! Of course, a few thoughts went through my mind after that: 1) I really wish he hadn’t opened that card right before mine, and 2) That’s a lot of money for an 8-year-old. It then occurred to me that this was a great learning opportunity to introduce the “taboo” topic of money and discuss his plans for the money he received. I wanted him to think about what he was going to spend, what he was going to save, and what he was going to give.
Raising financially responsible children starts with basic money principles- from budgeting and planning to saving and sharing. Besides giving them an understanding of the value of a dollar, teaching children about fiscal responsibility prepares them to be financially savvy adults in the real world. Here are a few tips that may help you jumpstart the conversation about money with your own child or little one in your life.
- It’s Never Too Early to Have the Conversation
It’s never too early to start having discussions about your values and how you use money. Even with young children, you can start to literally introduce dollars and coins and let them compare the different sizes, shapes, and textures. As they get older, it can be a valuable and lasting experience to share your own personal stories and relationship with money and how that compares to your child’s access to financial resources and the opportunities that money affords. I will always remember the stories that my own mother recounted from her childhood, and how a major earthquake coupled with a civil war in Nicaragua turned her family’s lives upside down and prompted their relocation to the United States. It was a humbling experience for her entire family as they had to leave friends, family, and a financially comfortable life behind to rebuild their entire financial lives from scratch. I’ve always reflected on that, and perhaps at a subconscious level, those stories inspired my initial interest in wealth planning and being prepared for the unexpected.
- Spending Responsibly
Allowances, gifts, or even money from a part-time job can go very quickly if your child doesn’t have a good grasp on the consequences of spending. Learning how to set goals and spend responsibly allows your child to hone their decision-making skills. As a starting point, you can help them outline their “wants” versus “needs” and let them set specific parameters on what to spend their money on. And if you have one, you could share your own family budget and ask them for their help and input in categorizing various expenses in the “wants” versus “needs” buckets. This is particularly important if you have a child at home that will be soon leaving the nest for college. Working with him or her to establish a realistic budget for college is a must do exercise and can prevent a lot of heated arguments over spending down the road.
- Introduce Savings
As your child starts to understand the differences between how much things cost, they’ll start to learn that some items are more expensive than others. Help them set goals for any big-ticket items and encourage regular savings- perhaps through deposits into a bank account. Then, as the balance grows, you can make it a habit to review the account statements together. This is a great opportunity to teach your child the concept of interest and how the bank pays people back for saving their money. If you have a teenager with earned income from a part-time job, you can even go a step further and help them set up a custodial Roth IRA. This is a great way to introduce the concept of investing and after-tax savings.
- Giving is Important Too
Even early on, it’s important to make giving and sharing a part of a child’s association with money. It teaches responsibility and can be rewarding for the entire family. But make it a fun family project! For instance, you can get everyone involved to do some initial research and make a “pitch” for an organization or a charitable cause to support and the proposed amount to give. Some families will establish a donor advised fund and engage the entire family to serve on the “board” and make grant recommendations.