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Financial Lessons to Share With Your Children

The need for early financial education has perhaps never been greater.

According to an annual survey by the Global Financial Literacy Excellence Center, fewer than 50% of Americans were able to correctly answer at least fourteen of twenty-eight basic questions regarding their personal finances. The same survey discovered that 39% of US households lack sufficient savings to cover a month’s worth of expenses, illustrating widespread financial vulnerability.1 These figures underscore
the importance of achieving a base level of financial literacy in order to thrive in the modern economy.

So, who should be the one to prepare our children with the knowledge that’s necessary to confront today’s financial challenges? Skills such as budgeting, bill paying, and appreciating the value of a dollar are instrumental to your child’s future success, but most school curriculums fail to equip students with even a basic foundation of financial literacy. As a result, the responsibility of teaching these skills and encouraging sound financial habits often falls on parents.

Strategies for Instilling Sound Financial Values

Financial literacy refers to the understanding of financial concepts and money-management skills, particularly the ones an adult might need to make smart, financially-sound decisions. Some of these skills include budgeting, using credit cards, taking out loans, paying bills, and planning for retirement.

Some of these topics might come up in a high school home economics course, but most will not be adequately covered. Without your influence, your child may reach adulthood unprepared to handle some of these important tasks, potentially leaving them vulnerable to those who would seek to take advantage of them, such as predatory lenders, scammers, or needy friends and relatives.

In the interest of setting your child up for success, here are some simple, but fundamental, financial lessons that you can incorporate into your child’s routine.

Teaching Through Storytelling

Do you like to read to your children in the evening before bed? Why not add a story about money to your routine? After all, the most effective way to engage your children is by integrating learning opportunities into their favorite activities so it doesn’t feel like they’re being lectured. Building fun or familiar associations can also help kids retain pertinent information.

Instead of simply telling your kids to save money, consider illustrating how saving money is important by sharing a story. You could, for instance, weave a story about a kid who decided to splurge all of his money on snacks and therefore couldn’t afford the sneakers he wanted, unlike his classmate, who chose to save her money. A narrative like this reinforces the importance of budgeting, goal-setting, and distinguishing between wants and needs.

When coming up with educational stories for your kids, try to adjust the context and messaging to match their age group. Having the story be accessible and relatable is key to ensuring the lesson is retained.

Establishing the Right Mindset

It becomes harder to change the way we think as we get older. That’s why it’s crucial for you to consider instilling financial values in your children while their brains are still malleable and receptive to new ways of thinking. Think about encouraging your child to use the concepts of financial tradeoffs and problem-solving when contemplating purchases.

For example, let’s say you go to a toy store with your child and they’re drawn to an expensive toy. Instead of turning them down on the premise that they don’t need or can’t afford that particular toy, you can challenge them by asking how they’d go about earning it for themself. Posing questions like this can lead them to open their mind and consider the costs associated with their purchases. Will they need to take on more chores or make an adjustment to their allowance saving plan? Do they value this purchase enough to make sacrifices elsewhere?

Going through this exercise with your children can help them establish priorities in their mind and recognize that everything comes at a cost.

Enjoying the Fruits of One’s Labor

When it comes to gaining perspective, there’s no substitute for firsthand experience. That’s why one of the most effective methods of instilling financial discipline in your children is to let them earn their own money. By encouraging them to work for the things they want, they’re likely to learn the value of money for themselves.

While your children are young, you can start delegating simple household tasks such as washing the dishes, taking out the trash, and mowing the lawn. When they’re old enough to receive an allowance, you can start paying them a modest amount for the chores they do. It’s important that the money your children receive is clearly tied to the work they do. This means that if they don’t complete their chores, they don’t get paid. The idea is to build an association between hard work and the financial payoff that results from it.

The trial and error phase is an essential part of the financial learning curve, so don’t be afraid to let your children make mistakes early on. After all, haven’t each of us made decisions with our money that we later came to regret? Having your children go through these learning experiences while they’re still living at home can help ensure they don’t make the same mistakes as adults when the stakes are higher.

Being Patient Pays Off

Delaying gratification usually leads to greater rewards. This is a lesson that you’ve likely come to appreciate over the course of your life, but it can be a harder concept to grasp as a child.

For example, those who opt to invest in their retirement will ultimately get to enjoy their Golden Years more comfortably than those who spend all of their money as it comes in. Similarly, people who continue to live with their parents to save on rent can end up having more savings in the future. It bears mentioning that delaying gratification in these ways can be harder for children in lower-income families than for children in high-income ones – see the results of the famous “Marshmellow Test” for evidence of this – but the lesson is an important one nonetheless.

Saving money is a habit, which means incorporating it into your routine takes practice. You can get a headstart habituating your child to saving by having them put aside a portion of all the money they earn as soon as they receive it. Whether they use a piggy bank or a savings account as their savings vehicle will depend on their age.

Teaching Your Kids About Money

Establishing a base level of financial literacy while your child is young can go a long way toward preparing them for the challenges of adulthood. Financial skills are more easily grasped when they’re taught gradually and the lessons are made accessible to the recipient. The key is getting creative with the way you deploy those lessons – how can you express a financial concept in a way that’s fun and memorable? Doing so effectively could end up paying off in a big way.

If you have any questions regarding your finances or would like to discuss strategies for instilling sound financial values in your kids, connect with us at any time.


Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder I Senior Managing Partner

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