Alexandra is a wealth advisor specializing in working with multi-generational family clients while Ryan’s role as a wealth advisor allows him the opportunity to encourage money conversations within families. In this Viewpoint, they collaborate to bring awareness to an often overlooked piece of wealth transfer success.
Clients often talk to us about the difficulties of raising financially literate children and wonder how to ensure their good fortune isn’t taken for granted. In “The Opposite of Spoiled,” author Ron Lieber highlights the importance of “money conversations” in raising fiscally responsible children who have a balanced perspective about money and financial matters. Ideally, such children will embody values like curiosity, patience, thrift, modesty, generosity and discipline.
In our experiences – both as advisors and as parents – these issues are best addressed at early ages. Here are five lessons from the book that we have applied in our own respective families and enthusiastically recommend to you:
1. Use money as a tool for teaching
Lieber recommends that children receive allowance as soon as they begin to show interest in money or counting. Allowance should be given regularly and consistently, which will provide many teachable moments about handling money. Try using three clear jars in which allowance can be deposited by the child for (1) spending, (2) saving and (3) giving. For example, in the Ollinger home, allowance is broken down into fifths, currently five quarters per child. Each jar is expected to receive one of the quarters; however where the other two quarters are deposited is completely up to each child.
2. Reward initiative to instill a strong work ethic
Everyday chores are regular obligations for children, and should be rewarded with privileges such as TV time or access to a car. Rather than paying children to perform basic chores, Lieber recommends using financial rewards to promote problem solving and an entrepreneurial spirit. Money is an appropriate reward for a child who offers to rake leaves in the backyard or wash a dirty car. Kids love projects, and encouraging initiative can provide an important life skill.
Consider encouraging high school children to have a part-time job. According to Lieber, working 15 hours per week or less has shown to have no negative impact on a child’s grades. Not only does having a job teach responsibility, it also means they will face less culture shock and be more prepared when they join the work force after college.
3. Children are hardwired to give
Children will likely bring up the topic of giving long before you consider introducing it to them. So, it’s best to follow their lead. Lieber shares the story of a four-year-old girl who upon seeing a homeless person questions why she can’t take him home with her. Even if you are not typically inclined to give homeless people money, you may want to consider teaching your kids compassion and empathy for others by giving them a granola bar, bottle of water or a “Giving Bag” filled with supplies. Keeping these small items in your car is an easy way for kids to do something when they see needy individuals standing on the street corner with a sign asking for help.
Our advice is to let your children have a voice in the family giving decisions. Help them find the right avenue for giving once they decide who they’d like to help. For instance, the Klekar children recently decided they would like to give to charity. They liked the idea of providing school supplies to a less fortunate child, so they plan to use some of their “give” money to support this cause.
4. Saving teaches patience and discipline
In an era of instant gratification, teaching patience has become more challenging, and in Lieber’s view it’s now more important than ever.
Having a clear jar where accumulated “saving” money can be seen is much more effective than a bank savings account where the accumulation is less tangible, especially for younger kids. Consider a matching contribution for money your children choose to put in their save jar instead of their spend jar. There is no magic formula, but the goal is to encourage children to be thrifty, understand how savings can grow and make smart decisions about money at an early age.
5. Don’t fear tough questions from naturally curious kids
Lieber counsels us not to be afraid of tough money questions. “How much do you make, Daddy?” “How much did our house cost?” “Are they rich?” “Are we poor?” According to Lieber, “why do you ask?” is a good response as it digs deeper into the meaning of the question and buys a little time to consider your answer. Honesty is the right policy, because our children are capable of finding a lot of information on their own (thanks to the internet).
Rather than responding to the question of, “can we buy this?” with, “we can’t afford it” (which may not be true), try, “we choose to spend our money on other things.” This provides a teaching opportunity about our spending decisions.
Lieber also tells a story of a man who withdraws his entire monthly paycheck in the form of one dollar bills. He then gathers his children around the dining room table and sorts through the family’s expenses – peeling away the dollar bills to pay for each. Those eyes that were so big when the monthly income was first produced got a lot smaller when they saw how much had to go for housing, utilities and other essentials.
We whole-heartedly endorse Lieber’s emphasis on transparency when it comes to family finances. Some money conversations may make us uncomfortable and push us to be more open than we’re naturally inclined to be. However, in our experience, most parents talk too little about money. So we hope you’ll start talking soon – either with your children directly or with your Truepoint advisors about finding the tone and transparency for these important money conversations in your family.