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Family Finances
Teaching Children About Money
By Russell Lowry
Wealth Planning Advisor, Sagemark Consulting / Lincoln Financial Advisors
Interestingly, the subject of how to handle money is something that many parents put off discussing with their children, says Karen DeRose, a Certified Financial PlannerTM practitioner with Lincoln Financial Advisors in Chicago. “Typically, our parents weren’t forthcoming about money, so it’s not a subject we’re necessarily comfortable bringing up with our children,” she says.
If you avoid discussing money management with your children, they will likely pick up lessons on how to handle money from the least appealing sources: the media, advertisers or friends—all of whom often make compelling pitches to young minds to overspend.
Molding Behavior
Fortunately, there are a number of ways that parents can teach their children to be thoughtful, deliberate and generous with the money they earn or are given. A good place to start is with an allowance, DeRose suggests. The purpose of the allowance is to give your children practice at making decisions on how to handle money. When you first start giving an allowance, it’s a good idea to use that occasion to offer guidance about what are acceptable ways to use the funds. This is a good time to introduce short- and long-term goal setting.
“We want to teach children to do four things with their allowance: spend, save, invest and donate,” says DeRose. One way parents can reinforce these options is by giving their kids a piggy bank with four slots, one for each of the choices. The purpose is to help children think about their money options, rather than just rush out and spend as quickly as possible. This can help teach and reinforce the notion of delayed gratification.
A Mindset of Giving
As your children get older, it’s a good idea to incorporate financial goals into their savings efforts, DeRose suggests. It not only makes money management more fun, but it encourages kids to carefully consider the consequences of spending money.
“You may want your children to learn that it’s important to give back to the community,” says DeRose. She advocates taking it even further and encouraging your kids to not only make donations, but also volunteer their time at some of the charities the family supports financially.
Setting a Good Example
While communication is critical when teaching children good spending and saving habits, parents should keep in mind that their own actions are equally important. Accordingly, DeRose encourages parents to share their own financial values and goals with their children.
“Tell them about your own goals, that you’re saving for their college education and your own retirement. Let them know that each week you take money from your paycheck and put it toward a college fund and 401(k) plan,” DeRose says. “If they start hearing these terms at a young age, they’ll remember them.” It’s important to keep in mind that if we want our children to be good money managers, we have to model that behavior first.
Postponing discussions about money management doesn’t help your children, and can even hurt them in the long run. From an early age, children are constantly exposed to advertising that bombards them with the often persuasive message that the main purpose of having money is to spend it. Countering that siege is a task that should begin early—as soon as they are able to understand simple concepts.
Starting a financial education early is critical, DeRose underscores. With very young children, you’re molding behavior. When you reach kids at the middle school or high school level, it’s much harder to change their attitudes and behavior, because at those stages kids are more influenced by their peers and societal pressure. “You can mold young children. It’s really easy; they’re like sponges,” she says. “When they get older, it becomes much more difficult.”
To review money management approaches you may wish to consider taking with your children, please contact your financial planner.
Talk to Your Financial Planner About:
The financial habits and values you wish to impart to your children.
Strategies for discussing personal finance with your children.
Approaches for reinforcing optimal spending and saving behavior.
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