How to talk to your kids about money

Photo: Getty Images

By Steve Dinnen

We recently wrote about talking to your parents about money. Today, we reverse course, with instructions about how to talk to your offspring about how they can manage their money and handle their finances. The opportunities and responsibilities here are broader, since they probably live under your roof for their early years and it’s your parental duty, after all, to impart at least a bit of wisdom.

So first, the basics: When, what and how?

“It’s never too early to start” with financial education, said Susan Rathjen, senior vice president of private banking at Bankers Trust. “Playing grocery store was always a big thing at my house,” she added, noting how it shows young ones the value of something while learning how to count pennies, nickels, dimes and dollars. Allowances also help.

Some kids work after school, some don’t. Either way, their financial needs grow with their responsibilities. You’ll want to find time to explain the difference between needs and wants. It can be hard for a teenager to accept that a 6-year-old Ford sedan will get her back and forth to school just as efficiently as a brand-new BMW.

“Money is emotional,” Rathjen said. “It doesn’t matter if it’s one dollar or one million.”

Family wealth and intergenerational wealth can complicate matters, but it also opens an opportunity for a deeper discussion about money, not avoidance. Rathjen works with one wealthy family that has a practice of meeting with each child when they turn 16, to explain where things stand. Periodic updates are warranted, but their frequency can vary depending on the child. Nothing is set in stone.

“Sometimes a 25-year-old is ready to hear about wealth, but sometimes not,” said Lorilee Mills, senior vice president and senior family dynamics specialist with Wells Fargo Private Bank.

Even so, silence can have a major impact on the way families handle intergenerational wealth and pass it along, so at some point, the younger generation needs some coaching. This is especially true when a business is involved. An oft-cited Northwestern University study of Illinois manufacturers found that only 13% of the businesses lasted through the third generation. So it’s key to a company’s survival to properly educate heirs about money and its management.

Parental duties are lifelong. If you see your kid going down the wrong financial direction, it’s your job to step in with some corrective guidance. The conversation never really ends.

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