Teaching kids about money in the Digital Age isn’t always easy. Between online shopping, direct-deposit paychecks and banking by app, today’s children are growing up in a world where they may rarely experience a cash purchase or even a monetary transaction. To kids, it can look like the next item we want or need just magically appears on our doorstep.
Particularly because spending and saving are less visible and tangible, it’s important to talk with your children about money. One of the best times to teach children and grandchildren about money is during the teen years, while they are old enough to understand your values—and you still have direct influence over their lives.
This is why it’s so important: According to a Price Waterhouse and Coopers study, Millennials & Financial Literacy 1, today’s young adults are struggling significantly with personal finances. When tested on core concepts, only 24% of Millennials demonstrated basic financial knowledge, and nearly 30% are overdrawn on their checking accounts.
As a parent or grandparent of the next generation of young adults, how do you set your son, daughter or grandchild up for financial success? What skills and values can you instill in them before they leave home? Our CEO and President Malcolm Butler and his 25-year-old daughter Bess, who recently joined The Fiduciary Group as a Client Administrator, share what financial education looked like in their home. Through their experience, you’ll find four specific ways to help your children and grandchildren learn about saving and spending.
Show Kids How to Save for the Future
As a father, Malcolm recalls talking a lot about the importance of saving while his three daughters were growing up. He opened individual investment accounts for each child to jumpstart their retirement savings. “Whatever my children would put into the account, I would match it,” he said. He found this encouraged his girls to save.
You don’t need an investment account or large amounts of money to practice this advice. “Start saving—it’s never too early or late,” Malcolm explained. “As soon as my kids had Social Security numbers, I opened accounts for them. I started small, with only about $25 per month. What’s important is to put some money aside.” Because of compounding interest, a little bit when your children are young can grow to a healthy nest egg later. “The only way to get a big account is to start with a small account,” he stated.
Malcolm has seen his savings strategy significantly affect his children. “All three of my girls are good at controlling expenses, and every one of them saves money,” he said. At age 25, Bess fully maxes out her 401(k) contribution and saves additional money each month that she views as untouchable. At her age and with compounding on her side, she’s hoping it will pay off.
Make Budgeting a Way of Life
As Bess was growing up, spending was almost always tied to a budget. “We would only go clothes shopping twice a year. Anything new was always need-based, like new shorts, because I outgrew my old ones. And I would always have a budget when we shopped,” recalled Bess. Bess’s parents paid for her college education, but as a value-oriented family, it made sense to have a budget for this as well. She could choose any state-supported school, preferably within driving distance.
Prior to starting college, the Butlers created a budget for Bess to help her understand how much money she had for expenses, like tuition, food, clothing, rent and spending money. Bess believes this was a very beneficial exercise.
“Because I knew how much I had each month, I could set a weekly budget, so I wouldn’t run out before the end of the month,” Bess said. “It was also helpful knowing how much life costs. This prepared me for budgeting my own money when I got out of school. Paying for my own expenses became easier, because I already had the experience in college.”
Teach Them to Spend Less Than They Earn
Malcolm has the benefit of working with people daily on their finances. “My most successful clients and role models are those who don’t spend a whole lot of money or at least spend a lot less than their income,” he said. Over the years, Dad has shared stories of his clients’ successes and challenges along with the consequences (anonymously, of course) with his daughters. Looking back, Bess found these stories inspiring and much more relatable than if her parents had just told her what to do with her money.
Today, Bess lives on less than she earns and doesn’t spend money she doesn’t have. She got her first credit card six months after college to help build her credit because one day she would like to own a home. And she pays her credit card bill in full each month.
You don’t need to be in the financial business to teach your children about money through storytelling. As a parent, you can share financial successes and hardships, either your own or those of friends and family members.
Put Kids to Work
Malcolm and Bess both believe that children can’t fully understand money until they start working. “Kids need to work. The earlier, the better,” commented Malcolm. The youngest of three daughters, Bess was pet sitting for neighbors and selling lemonade before she was 10 years old. As a young girl, she also went with her father to the local golf course, where she searched for lost balls. “We could find up to 200 golf balls that I would sell to golfers for $.10 to $.25. It was hard work, looking for and selling those balls,” she said.
As she grew older, Bess continued to find new ways to earn money, from babysitting to driving other students to school and sports practices. Once she had her license and access to a car, the family had an understanding that if Bess wanted spending money, she needed to earn it. While her parents continued to provide her with the basics, she paid for the additional things she wanted, like eating out, extra clothing, movies and concerts.
Bess believes that work doesn’t need to be paid to be valuable. Families can begin when children are young. “It takes a lot to run a household, whether it’s cooking, cleaning or yard work. It’s good for kids to share the responsibility, even if they’re unloading the dishwasher, sweeping the floor or mowing the lawn,” she said.
The Butlers’ top recommendation for families looking to instill strong financial values in their children? Bess and Malcolm both think that work is one of the most critical factors. Until they have a job, it’s hard for kids to fully grasp the importance of good saving and spending habits. Plus, the meaning of money changes for teens once they work hard to earn it themselves—versus having it given to them. Bess firmly believes in the age-old adage, “If you want something, you have to work hard to get it.”
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Disclosure
This article does not represent a specific investment recommendation. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from The Fiduciary Group which can only be provided through a formal advisory relationship. Clients of the firm who have specific questions should contact their The Fiduciary Group advisor. All other inquiries, including a potential advisory relationship The Fiduciary Group, can be directed here.
1 https://www.pwc.com/us/en/about-us/corporate-responsibility/assets/pwc-millennials-and-financial-literacy.pdf