Coaching parents and grandparents how to teach their families about finances is one of the most important things an advisor can impart. They are the future inheritors and despite the barrage of information, today's youth and young adults are challenged with many of the basics of financial decision-making and success.
In many families, few financial conversations ever take place. As a result, many children, even in middle- and high-income families, reach young adulthood lacking many of the skills needed to navigate financial waters successfully. In one survey more than half of high school students said a money management course would benefit them more than any other class offered in school.
While some high schools are implementing such courses, parents are their children's first and most important teachers.
Advisors are in a unique position to coach clients that part of their "legacy" is making sure their children and families are prepared to handle the money they will possess, whether it is through work or inheritance. Helping clients hold intentional conversations about money matters is of growing interest. The following are a few points for consideration in building a library of information to teach children how to earn, spend and save.
How To Earn
Potential Exercise: Chore Money (lesson is longer projects = more money). Teaching children about earning may seem easy, but often affluent adults make mistakes, such as paying too much for too little work. Whereas paying children a "wage" that is reasonable for the task will begin to teach the value of hard work. In life, usually longer or bigger projects garner more money, yet our current generation often is taught that money comes easy.
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Coach clients to give their child a list of 10 household jobs with the fees to be paid for each one. Tie longer tasks to more money. If the child needs more money, they must do more work.
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Coach grandparents against being too generous. The $100 bill for a one-hour project could be easily changed to the same reward for a day long project and a $10 bill for a one-hour project.
How To Spend
Potential Exercise: Estimating Prices (lesson is putting "wants" into context). For many kids, spending is the main thing they think about when addressing the topic of money. This assignment can be a big wakeup call for kids who think everything they want is easily affordable.
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Coach clients to give their child a worksheet with 25 items, and ask them to write their estimated price for each one. Have the children them find the actual prices and compare. Going deeper to compare prices—including unit pricing found at the grocery store and differences in quality among similar items—are just some of the follow-up discussions to illustrate just because one item looks like it may be less expensive, it doesn't mean it really is.
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Coach grandparents to discuss a savings plan where they match the child's contributions and put funds over time toward an expensive toy is equally valuable. Delayed gratification is one of the best skills a young person can develop for success in life, and this exercise is a great way to teach it.
How To Save
Potential Exercise: Budgeting (lesson is make saving a part of everyday life). By age 16, a child should know how to make and maintain a budget. This is also a great time to teach youth about the power of compounding and investing over the long-term, as well as the importance of having an emergency fund.
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Coach clients to ask their children to provide a list and analysis of the three best "budgeting programs or apps" and propose to you the best one. Have the parent assist the child in any way to set it up and then help teens start a savings or checking account, and consider investing in mutual fund that pulls money each month from the bank account.
Knowing that these "conversations" are ongoing and repetition is needed provides advisors a valuable avenue to connect with clients and make a unique difference in the lives their family. It may also make the difference between preparing heirs to preserve wealth long term, or not…and your organization keeping a strong family relationship.
Shari Burnum, founder of Investor's Resource, specializes in holistic wealth management for owners, professionals and other high-net-worth individuals.