Clients often ask our family wealth advisors exactly how involved their children should be in the financial planning process. It's easy to understand the question, as involving your child in financial decisions is an ideal way to teach them valuable lessons that will help them later in life.
On the other hand, how much financial input from the kids is too much? While exposure to fiscal decision making and investment planning at an early age helps create a foundation for financial literacy later, it's essential to reinforce that the adults are still in charge. Read on as our wealth advisors share tips to help you involve your children in financial matters in a way that's right for your family.
Talking About Money: What to Share About the Wealth Management Process
For some families, talking about financial matters comes naturally. For others, it's a bit more taboo. In fact, according to a 2014 survey, 44 percent of Americans say that discussing money is more difficult than talking about other "not for polite company" topics, such as politics, religion and personal health matters.
While it's fine to follow societal norms (or not, as the case may be), treating financial topics as taboo with kids may contribute to a lack of financial literacy. Research indicates that American teens are less financially savvy than their peers in many other nations, such as China and New Zealand.
No one's suggesting that you share every last detail of your family finances with your children, but at the least, you may want to seek out teachable moments such as:
- The importance of savings
- How to budget
- Comparing prices while shopping
- Calculating tips and interest
Money Discussions: Family Wealth Management Strategies
When children show interest in finances, take the time to involve them in family discussions. For instance, if you're eating out, compare the prices of different menu items — such as the cost of ordering a soft drink versus water — and demonstrate how the tipping process works. At the grocery store, show your child how to comparison shop, how to use a list, how coupons work, and the difference between brand-name and generic prices.
These daily activities and discussions teach by example, allowing your child to gain hands-on experience in decision-making that's based on factors such as priorities, convenience, quality, and value. It's one thing to talk about the theories behind monetary matters, but gaining that practical experience offers another layer of learning. Providing children with these critical thinking tools will help them make responsible financial decisions when they're older, and create good fiscal habits.
But as you're discussing financial planning issues and allowing more leeway in your children's financial choices, ensure that they still understand that, as the parent, you are the final decision maker. While it may be difficult for a child to understand that you have veto power over their spending, you can remain an authority while still valuing their contributions and opinions.
As your child grows and gains more understanding, they'll value the fiscal foundation you've helped them develop.