Family Conversations About Money
Money can be a blessing and a challenge, and families of all shapes and sizes deal with this aspect of life. Some families handle this area more successfully than others, but as a parent, being able to have conversations about finances gives you the opportunity to impact your children, regardless of their age, in significant ways.
In general, discussing money can be one of the most challenging conversations, and the thought of talking about this with your children only adds to the problem. Even if you feel comfortable discussing hard topics with your family, knowing this topic can be daunting.
Whether you have regular discussions with your teenager about how much money they would like to have for their weekend activities, or you are talking with your adult children about dealing with college debt or a mortgage, these interactions can be prickly or even explosive.
Nevertheless, engaging in conversations about money is crucial for your family’s well-being and your children’s financial success. While there may be short-term challenges, applying some basic principles and helping your family put them into practice is a worthwhile endeavor.
Outlined below is a framework that addresses your Position, Principles to employ, and Practices you can utilize when your children live at home.
When they live at home
Position: Teacher
When your children are at home, your primary role is to teach them wise financial principles, how they can put those into practice, and what are the lessons they can learn from their successes and failures. It’s important to note that teaching is not synonymous with telling. Great teachers ask good questions, because it helps the student (in this case your children) learn to think for themselves and apply what they learn.
Any conversation that is a dialogue, as opposed to a classroom lecture, is usually more enjoyable and effective. While it will take some extra preparation to devise a few good questions, planning with your spouse or seeking advice from those further along the journey can be beneficial.
Here are a few resources:
Regarding money
https://capitaloneshopping.com/blog/teaching-kids-about-money-9848d817c7fb
Asking open-ended questions
Principle:
Begin with the basics and start early as that’s when children are most impressionable and learn quickly. Make discussions about money a normal topic and try to craft a creative or fun exercise to teach them wise financial practices.
Addressing financial priorities involves allocating money based on what’s most important. In theory, this sounds obvious, but in actuality, many Americans can be short-sighted in their financial decisions. Even for parents who are strategic in handling money, it’s essential to impart wise principles to their children, because children don’t always see or understand what their parents do with their finances.
A helpful framework at any stage is:
Give | Invest/Save | Spend
Give
Even if giving isn’t a normal routine for you, it’s helpful for children to learn the value of helping others. In addition, it’s good for them; the physical and mental health benefits associated with giving (or serving) are well-documented. (Benefits of Giving: Cleveland Clinic article)
Some benefits include:
- Boosting self-esteem
- Elevating happiness and combating feelings of depression
- Lowering your stress: by reducing your levels of cortisol, the stress hormone that can make you feel overwhelmed or anxious
- Lowering blood pressure
- A longer lifespan: studies show that people who volunteer tend to live longer than those who don’t.
Possible discussion with your child: “What would you like to give to? How can we give or serve together as a family on a Saturday morning or afternoon? “
Invest/Save
Teach the Power of Compound Interest:
One of the most important and motivating concepts in investing is compound interest. It’s a fun lesson to teach your child, and you might enjoy learning more on this topic as well. Below are a few websites that can help. While you may need to adjust them for your child’s age, consider creating a trivia game or using coins or candy for a fun and engaging way for them to learn.
https://wealth.visualcapitalist.com/visualizing-power-compound-interest/
https://www.ramseysolutions.com/financial-literacy/teaching-compound-interest
Possible discussion for this topic: Ask your child what is a more expensive item they want and how much money they will need to save to be able to buy it. Having a separate “Save” category, distinct from “Invest,” allows them to set short-term goals as they save for something they really want.
Spend
Help Your Children Develop a Spending Plan:
For younger children, this is simply a fun discussion about what they would like to buy and how can they divide their money so they can buy several of those items.
When your children are older, and they start to ask for money to go to the movies or for gas, use this as an object lesson. Instead of giving them money when they ask for it, sit down with them a tell them how much you plan to allocate each month.
Then help them develop a plan for how much they need to set aside for gas or going out to eat with friends on the weekend or other events.
Help them realize there is flexibility with this plan. If they drove more than they normally do over a few weeks, remind them they can reallocate funds from their movie/events fund to cover gas expenses. Or maybe they can share rides with a friend and use the money they saved to go to a sporting event or a concert. (Without using the word, you’ve actually taught them how to make a budget, plus a spending plan sounds more fun anyway.)
Practice
Establish Ground Rules:
Consider giving them an allowance that’s tied to their chores. This teaches them the value of contributing to the household while also managing their finances effectively.
Guide them in dividing their money into categories to meet future needs. A suggested allocation template is 10% for Giving, 10% for Investing, 10% for Saving, and 70% for Spending.
For younger children, make their allowance a fun activity. Discuss their plans for giving or saving and after allocating the first 30%, they can choose how to use the remaining 70%. A fun activity to accompany this is to ask them if they want to take some money from their spend category and go buy something fun as an afternoon outing.
“Seeing is believing”: If they can see their money growing it’s tangible and more motivating. For the younger children, a helpful idea is to give them a piggy bank that’s clear and also has 4 compartments (readily available online). As they see their money grow, it reinforces the importance of saving. This also allows you to be creative, as you can add money to their invest and save categories to reinforce the previous lesson of their money earning interest.
As they enter the Tween or Teenager stage, continue their allowance. Their needs will increase but so does their ability to contribute to the household. Help them apply these principles on a larger scale by opening a checking or investment account with them. As you give them their weekly or monthly allowance, assist them in planning so they have what they need at a later date.
As they grow older, teaching opportunities transition from primarily instructing to asking questions that prompt them to reflect on their decisions and consider alternatives for improvement. While setting ground rules at home can be challenging, it provides an opportunity to witness their development and prepare them well for the next phase.
While these are some beginning steps to take, throughout this process you are helping your children learn to handle money wisely. You are also building a solid foundation of having meaningful discussions on the topic of money.
To learn more about CapSouth Wealth Management and our services, visit our website or call 800.929.1001.
Article by: Clay Cook, Associate Advisor
CapSouth Partners, Inc, dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice. This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth). CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from this article. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.
