Many parents struggle with how to talk to their children about money. Yet the topic takes on greater significance when parents start thinking about passing on their assets and preparing those same children to eventually become their heirs. Parents should view this as an opportunity to not only pass on monetary assets, but to also share the financial lessons and values they’ve developed.
Connect money to work. Begin by talking to children about what it takes to bring home the money you earn. This doesn’t mean parents need to discuss specific dollar amounts, however. If you can, provide opportunities for children to see you in action on the job and talk about how you developed your skills. High school students should be encouraged to work part-time, at least during the summers, and to set a savings goal.
Let them get hands on with money. Giving younger children an allowance can be a great way to teach them how to manage money and understand basic ideas such as saving. To help older children gain experience and build confidence in managing and investing money, parents might consider making small gifts to start an investment account. Allow the child to take ownership, choose the investment and track progress, with guidance and input as needed.
After college graduation, parents who have the financial means might be ready to give a larger sum of money to their child to be used to make a down payment on a first home or start a business. The goal here should be to give them the opportunity to put the money to their own positive use.
Seeing how children handle such a gift can provide insight into how they will react to a larger inheritance later in life. If your child spends a small gift quickly, you may need to put more controls around the larger inheritance that is coming.
Inspire charitable giving. Parents can inspire a commitment to giving back simply by being generous themselves. Families can take on charitable projects together where every member has input and contributes. What’s important is to let children have positive giving experiences at a young age.
–Tim Steffen is director of financial planning for Robert W. Baird & Co. Inc.’s Private Wealth Management group.