I had the privilege of growing up in a stable, middle class family in Memphis, Tennessee. I could go to my parents and talk about anything—any troubles, any concerns…but there was one subject we didn’t discuss. Money. You just didn’t talk about money. Not about how much the bills were, or how much the new (used) car cost, or things like saving for college, or my dad’s retirement savings.
I’ve been an investment advisor for twenty-three years, and I’ve seen countless examples over the years of younger investors who have a very limited degree of financial literacy. This goes for people with advanced degrees as well—think about your experience in college; did you have any classes in general finances? Chances are, your classes were predominantly geared toward your major. Colleges across America have been churning out graduates with high rates of debt, and in most cases no formal education in how to manage their finances.
As parents, we can help our children gain financial literacy as they are growing up, rather than letting them repeat some of the same mistakes we’ve made. Here are some suggestions:
1. Have them help with the bills. Discuss what the power bill is and how it gets calculated, how much you’re spending on healthcare, and what the house payment is, just to name a few. This helps kids learn about how the household operates, and their place in it.
2. Discuss large purchases. If you are negotiating for a large purchase such as a car, this can be an incredibly valuable learning experience. Take them with you to the dealership so they can see the process of buying a car. When it’s time for them to make that first purchase, they know what it’s all about.
3. Talk about your investing experiences. I can’t count how many times I’ve had clients say to me, “I wish I had started earlier”. That’s good information for me to know, but it’s much more valuable to your kids! Tell them what you would have done differently to get an earlier start on saving, or to start saving more, earlier.
4. Talk about credit. Discuss the uses and pitfalls of credit, rather than letting them learn on their own. Prepare them before they leave for college that they will be bombarded by credit card companies, and how these offers of “easy money” can plague them for years.
Of course, the timing of these action items needs to begin at the appropriate age, but including children in your household’s financial dealings can have a lifetime impact. Learning these lessons at home, and over the course of years, can turn your youngster into a financially-savvy young adult.