It's been said that every crisis has a silver lining. For many, today's challenging environment presents a unique opportunity to get creative in how we teach the next generation about wealth and the strategies to manage it.
Uh-Oh: My Kid Wants to Be a ‘Social Media Influencer’ … What Are the Legal Risks?
Just as you work hard to secure your own financial future and legacy, it’s also important to ensure that your loved ones can navigate their own financial independence. In my career, I have used quite a few tactics to help prepare the next generation, and I have found the following five strategies to be most effective. But before digging into each strategy, let’s review the basics.
Understanding the Basics
Financial literacy can mean different things to different people, so it’s important to meet the next generation where they are – not where you would like them to be. My clients often have many personal and professional milestones under their belt, so they may have different perspectives from those who are just starting out.
Subscribe to Kiplinger’s Personal Finance
Be a smarter, better informed investor.
Save up to 74%
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But some financial literacy concepts are universally important, perhaps none more so than this: Understanding the connection between what you do and what you have. Oftentimes, this relationship isn't clear. For example, many younger members of my clients’ families have a habit of spending money without knowing how money is earned. Regardless of age or circ*mstances, proper financial preparation requires a steady focus on the future.
Preparation also means having conversations with loved ones about finances, which may be uncomfortable or challenging. This might make you a bit hesitant to begin the process. Below are five strategies you may find useful when teaching the next generation about money.
1. Communicate and Collaborate on Money Matters
Engaging your loved ones in frequent, quick and high-level conversations about finances helps keep the topic on their radar and often eases many of the anxieties that exist around these topics. For example, questions can start as simple as what’s something you want to buy that you’d like to begin saving for? Or, do you think your allowance or income is enough? Why or why not? The good thing about these conversations is that you can begin to have them even when your child is young.
Once they are comfortable with these quick chats, begin including them in larger discussions about spending, saving and philanthropy, which can make them feel more involved.
2. Turn Abstract Ideas into Tangible Reality
Children tend to be more engaged in learning when there is an emotional component. Telling the next generation to save more or donate to good causes without explaining why can make it hard for them to understand. Explain your own “why” behind your financial decisions to make these concepts more personal and, therefore, more memorable.
Many clients I work with are motivated to save or give because of something they’ve experienced before, and even if it’s not something your child will experience themselves, it doesn’t mean that you can’t help them see from another’s perspective. Making sure to point out the lessons — such as wanting to preserve a beautiful environment or to help someone in need or to appreciate beautiful craftsmanship — can drive the deeper value of money home.
3. Highlight the Advantages of Thoughtful Planning
It's not easy for young children — and many teenagers — to understand that delayed gratification can make them happier. Helping them recognize that disciplined saving and investing will allow them to acquire a toy, vehicle or lifestyle they really want can reinforce the benefits of acting responsibly. Make a vision board or other visual representation of goals to create a concrete reminder of the future they are trying to create.
4. Help them Learn Better with Incentives
A central tenet of economic theory is that incentives influence behavior. This helps explain why, as research firm Cerulli Associates found, the majority of employees say an employer 401(k) match was the reason they started saving for retirement. By offering your loved ones a similar way to grow their savings faster, they can learn good behavior that will hopefully stick with them for life.
8 Tips for Raising Financially Independent Daughters Today
This is simultaneously a way to instill appreciation for hard work as well. You can choose to give your kids a way to earn money by doing certain household chores rather than giving them a free allowance. You can also reward them more for a job well done.
5. Transform Mistakes into ‘Teachable Moments’
We all make mistakes, but when we see our loved ones falter, it's only natural to want to fix things. However, it's better for all involved if they understand that actions have consequences. Be sure to discuss the situation clearly and calmly with your loved one. If they don't get “bailed out” after blowing an allowance or what they have in savings, they will likely think long and hard before doing it again.
The Path to Financial Literacy
Of course, there's more to teaching the next generation about money than the five strategies above. For those who would prefer to work with standardized curricula tailored to different ages — from kindergarten to 12th grade — and learning styles, the resources from Maryville University are a great place to start. Other helpful information can be found at WNET Education.
Financial education is a journey – and the most important step is the first one.
How to Not Financially Paralyze Your Children
Topics
Building Wealth
As a seasoned financial expert with a wealth of experience in preparing the next generation for financial success, I've navigated various challenges to help individuals understand and manage their wealth effectively. My expertise extends to implementing strategies that foster financial literacy, and I've found success in employing practical tactics to achieve this goal.
Now, let's delve into the concepts discussed in the article:
-
Financial Literacy Basics: The article emphasizes the importance of understanding the connection between actions and financial outcomes. This fundamental concept is crucial for individuals, especially the younger generation, who may have a habit of spending without grasping how money is earned. Financial preparation necessitates a focus on the future, emphasizing the need for informed decision-making.
-
Communication and Collaboration on Money Matters: Effective communication about finances is highlighted as a key strategy. Encouraging frequent, high-level conversations with loved ones helps alleviate anxieties around financial topics. The article suggests initiating discussions from a young age, gradually incorporating larger topics like spending, saving, and philanthropy. This approach aims to make individuals feel more involved and comfortable with financial matters.
-
Turning Abstract Ideas into Tangible Reality: The article advocates for making financial concepts more relatable by adding an emotional component. Explaining the "why" behind financial decisions, such as saving or giving, can make these ideas more personal and memorable. By sharing personal experiences or lessons learned, individuals can connect emotionally with financial concepts, fostering a deeper understanding.
-
Highlighting the Advantages of Thoughtful Planning: The article emphasizes the challenge of teaching delayed gratification to young individuals. Connecting disciplined saving and investing to achieving desired goals, like acquiring a specific toy or lifestyle, can reinforce the benefits of responsible financial behavior. Creating visual representations, such as vision boards, provides a concrete reminder of the future they are working towards.
-
Incentives and Learning: The concept of incentives influencing behavior is applied to financial education. By offering ways for loved ones to grow their savings faster, such as through rewards or earning money for specific chores, individuals can develop positive financial habits. This approach not only teaches financial responsibility but also instills an appreciation for hard work.
-
Transforming Mistakes into Teachable Moments: Acknowledging that mistakes are inevitable, the article suggests using them as opportunities for learning. Discussing the consequences of financial decisions, without immediately bailing loved ones out, encourages accountability and thoughtful consideration before repeating errors. This approach contributes to building a sense of responsibility and long-term financial awareness.
In conclusion, the path to financial literacy involves a combination of these strategies, recognizing that financial education is an ongoing journey. The article also suggests additional resources, such as standardized curricula and educational materials from Maryville University and WNET Education, for those seeking structured approaches to teaching financial literacy at different age levels.
