Helping Children Understand Wealth Before You Pass It on to Them
April 23, 2015 | Home and Family
Ask any parent what he or she really wants; most will tell you that it’s for their children to grow up happy, fulfilled and financially independent. Yet it says something that Bill Gates, currently worth $81 billion, announced his intention to leave each of his children only about $10 million; and Warren Buffett, worth about $63 billion, said, “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.” Clearly, getting rich is hard, but teaching the next generation how to be effective stewards of that wealth can be difficult, too.
How can you share the benefits of your success without impeding your children’s future well-being? Here are five tips for raising financially healthy kids.
1. Talk about money early and often. Many parents dread having a conversation about money with their children; others simply don’t know where to begin. However, when you let the subject become taboo, it’s hard to educate and prepare your kids to have a healthy relationship with it. You don’t have to talk dollars and cents, however. Instead, begin by sharing your guiding values about what money means, what it can do and how you see the responsibilities and challenges that come with wealth.
Your conversations should proceed in an age-appropriate way. If you begin the discussion early, your children’s financial literacy will grow along with them. As it does, it will become easier to dive deeper into the topic of wealth and your hopes for your kids’ futures. It will also enable you to explain the need for discretion and privacy around money, especially to pre-teens and teenagers using social media.
2. First make it real. One way to help your children make the connection between work and money is to tell them the story of where yours comes from in the first place. Maybe your wealth was inherited, or perhaps you built it yourself. Either way, show your kids where it all started, and explain how you built financial security over time. Be sure to include mention of the mistakes, challenges and even failures that happened along the way. Understanding that success often comes after experiencing struggle can be one of the most valuable lessons your children will learn.
3. Then make it personal. Making the connection between work and money can begin at a young age. Start by giving your kids an allowance as soon as you feel they’re ready to begin learning how to manage, spend, give and save money wisely (whether you tie that allowance to chores is a personal decision). As your children grow older, involve them in day-to-day money decisions, such as purchasing their own personal care items (toiletries, shampoo, etc.) or managing their car expenses. Give them a set amount, and let them save the difference in their own personal account if they come in under budget.
Where appropriate, involve them in some of your giving decisions, and encourage them to set aside a portion of their allowance for philanthropy. Increase their allowance and their responsibilities along with their age. That way, when the time comes to manage a larger amount of money, they’ll have a better chance of managing it well.
For the experience to be meaningful, you have to be willing to let your children make mistakes and learn from them. If your daughter feels the pain of overpaying for a pair of novelty boots because she refused to price check, don’t supplement her weekly funds. Hopefully, she’ll be more motivated to shop around next time. Similarly, if your son blows his week’s allowance on concert tickets, resist the urge to bail him out. An allowance, when structured thoughtfully, can teach a child the necessity of budgeting, the benefits of postponing gratification and the necessity of weighing choices.
4. Have them pitch in. As your children grow, so will their needs and wants. To help them understand the value of saving for these goals, consider making your kids contribute to larger purchases. For example, if your child insists on having a particular brand of high-end sneaker, consider setting a limit on what you’re willing to pay. Your child can then decide to use his or her own savings to make up the difference. This is a great way to help them consider the relative value of their purchases. Similarly, you might consider telling children at an early age that when they are old enough to drive, you’ll provide x-amount of the purchase price of a reasonably priced new car and they’ll have to earn the rest. The message you’ll be sending is a powerful one: I’ll make an investment in you, but first you’ll have to make an investment in yourself.
5. Walk the talk. Friends and the media have a lot of influence on kids today. Nonetheless, what your children see you do is probably the most important influence of all. That’s why it’s crucial that your actions and your values are aligned. If you want your children to learn the importance of giving back, find ways to involve them in your own philanthropic efforts. Similarly, if you talk about the importance of being careful with money but shower your children with extravagant gifts, they’ll come to learn you don’t really mean what you say. If you don’t want your children to confuse spending with happiness, you have to live those values each day, every day.
Helping your children to build a strong and healthy attitude about money is a process that continues for as long as you’re there to give voice to what’s important. Bottom line: When it comes to raising financially savvy children, you never stop being a parent.