In the February 14, 2018 podcast of The Armchair Expert, actors Dax Sheppard and Ashton Kutcher discuss how they grew up in the Midwest on the lower end of the socio-economical scale and are concerned about teaching their children the value of money (who are living in the vastly different world manifested from Hollywood success). They are worried their children will have the opposite problem that they did – their lives are aided by the excess of money, not hindered by the absence—and wonder aloud together how they will raise successful children despite this new challenge.
Whether you are a Hollywood celebrity or not, teaching children about finances is a difficult but important part of childrearing. When it comes to financial planning and particularly retirement planning, it is not enough for adults to only focus on children’s education costs and helping them achieve financial independence. Parents should also invest early in teaching their children about financial concepts and values.
Parents can take advantage of everyday moments to enlighten their children on financial issues. This does not mean pulling out salary numbers and how much their house is valued for, but rather having children sit with them while they pay bills online, taking them to the bank to open their own savings account, or letting them hand money to the cashier for cash transactions. These small actions will help involve children in financial conversations early on.
Another exercise parents may find helpful is giving their children a chance to build savings on their own. This involves a number of tricky intermediate steps including communicating that children are expected to earn their own money—first through chores, then through outside jobs—and establishing that any new fun expense (ex. new phone) are purchased only if the child contributes a specific percentage. This exercise can be particularly useful for children who frequently ask their parents to buy the latest new thing. Completing chores and seeing their hard work in outside employment turned into cash on payday can help the consumer child appreciate the value of the items they want and their parents’ contributions.
Many successful parents are proud of their ability to give their children as much as they can offer, and this is certainly a commendable driver of success. However, it is important to check this impulse, as giving too much can actually be harmful to the child and shield them from important financial realities. Expecting children to take responsibility for their financial lives does not mean the parents have not provided enough for their children: It is not the responsibility of parents to step in and resolve financial challenges such as excessive credit card debt or a failure to save.
Additionally, if the child has an entrepreneurial spirit, this is an excellent opportunity to teach the child about profits, not just revenue. Parents should consider not absorbing the costs of lemonade for the lemonade stand or gas for the mower, as doing so may create unrealistic expectations of easy success. This can be an excellent lesson for how businesses function.
Children can be a significant asset in helping parents achieve their retirement goals, provided they understand these important financial concepts. It is up to parents to implement these lessons and by doing so, will help themselves meet retirement planning goals and impart important financial planning concepts to their children.
TABER Asset Management is a fiduciary and financial advisory firm based in Des Moines, IA that offers financial planning, investment management, and wealth management services. Please email us at email@example.com or call us at 515-557-1860 to get started on your successful financial strategy.