How To Get Your Children To Own Their Financial Future

I am often asked how to raise a financially literate child. It seems easy enough, right? We help them with some terminology, coach them to have financial discipline and teach them about the stock market. With a combination of an allowance and a lecture about frugality we send them on their way into life on the path to financial freedom. But like so many other aspects of raising a high functioning human, we learn that it does not work like we thought.

Instead, I believe we must start with our children’s underlying motivations. We must get into their psychology so that they can better perform with their decisions. Introducing our children to concepts like peer comparison can help teach them how to avoid peer pressure, but it also supports the idea of not trying to keep up with Joneses.

Here are my three tips to raising a financially literate child:

  1. Take time with your children to learn about their experiences, individuality and resilience.
    These lessons transfer nicely into the financial realm where their financial plan is tailored to their own situation. It also reinforces the notion that get rich quick schemes rarely work.

    Teach them that they should first invest in themselves (via higher education and personal well-being), and that by doing so it will help lead to better chances of financial success later in life. They need to know that they are their own greatest asset and can determine their own level of success. That is a powerful and invaluable lesson.
  2. Don’t forget that they are watching.
    Children constantly watch their parents to learn life skills. If they see you reading, practicing wellness and living well within your means then they too are likely to adapt these great habits. Openly talking about your financial plan is different from talking about your portfolio.

    Share with your children some of your goals, both short-term functional goals and long-term aspirational life goals. Tell them that you are taking steps with the family finances to move in the direction of your goals. Help children understand about capitalism and the economy. Explain how the stock market works and differences from the bond market. Do not be intimidated that your own knowledge might not be perfect because it is about exploring the topic and how it can relate to a better life. Reinforce how investments are fuel for the financial plan that hopefully take you closer to your goals.
  3. Once they understand broad concepts, introduce the weekly allowance, and introduce more technical terms.
    Funding a Roth IRA for a young adult is a great way to introduce them to investing. It gives a parent or grandparent the chance to answer their questions about what to do. It is such a good account for them to learn about and will hopefully be funded year after year when they begin their careers. If we can get their curiosity and engagement at this small level, they will be on the path to financial independence.

My team has recently launched an impressive website called Young Money, Smart Money to help young people strategically save and invest at an early age so that they can hopefully enjoy financial freedom later in their lives. If you have children in their 20s and 30s, I encourage you to share this website with them and use it as a tool to continue your dialogue with them around saving, finance, investing and financial planning fundamentals. We include actionable steps they can take now, and our advisors are happy to answer any questions they may have. I believe it is our duty to educate the next generation to be financially literate, and we are honored to have the opportunity to do so.

Rick Manske, CFP®, BFA™
Chief Executive Officer

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