Passing the Torch to the Next Generation
Jill Ciccarelli Rapps | èBella Magazine | Aug • Sep 2017
As soon as your children or grandchildren are old enough to count, you should initiate the “money talk”. By fostering financial values within your family members at an early age, you can lay the groundwork for their continued financial growth and success throughout their lifetime.
Introduce your children or grandchildren to the concept of finance by discussing spending and saving in simple terms. As they get older, you can begin introducing them to more complex strategies: how to make their money work for them most effectively; priority spending; tips and tools for investing; and the pitfalls of misusing credit.
The resources outlined below will serve as indispensable guidelines that can benefit your children and grandchildren for years to come.
Five Secrets to Building Financial Independence
By nature of the relationship you share with your family, children and grandchildren depend on you to fulfill their financial needs. However, as they age, you should begin to instill a sense of independence. In other words, provide them with the values, tools and support they need to adequately meet their own needs.
Here are the five secrets to building financial independence:
1) Start at birth: Purchase a piggy bank for each child or grandchild shortly after they are born. As soon as you begin to educate them about money, provide them with an earnable allowance – and use the piggy bank as a tool to encourage regular savings. Have them save $0.50 or more out of each dollar they earn.
To make the savings process more fun and relatable, divide the piggy bank into various sections: retirement, education, charity, health care, etc. In doing so, younger family members will be more likely to see the value of saving consistently over time.
2) Talk about money regularly: Although discussions about money are often considered taboo in our society, financial conversations are one of the most critical topics you can discuss with your children or grandchildren.
Openly discuss financial topics around the dinner table with the whole family – with a particular focus on engaging children or grandchildren. Encourage all of your immediate family to play a role in conversations about developing budgets, prioritizing spending and selecting investments.
3) Impart smart values: Focus on positive messaging that helps them develop strong spending and saving habits. Help them foster a healthy attitude about money and guide them every step of the way. In doing so, they will start to make smart decisions on their own.
4) Lead by example: If you tell your children or grandchildren one thing while doing the exact opposite, they are not going to take your advice seriously. By exemplifying your advice in your personal financial life, younger generations are much more likely to follow your lead.
5) Do not misuse money in the relationship: Let your children or grandchildren earn their allowance from you. As a result, you will help to support their needs without creating a sense of entitlement. Also, never withhold money to make a point or as a punishment for bad behavior. Using money in this capacity will create a negative attitude towards finance that can lead them to make poor decisions down the road.
The Ten Commandments of Personal Finance
Once your children or grandchildren have grasped the basics of personal finance, introduce them to the Ten Commandments of Personal Finance. These principles provide the necessary framework that prepares your family for their financial future:
- Thou shall not put out more money than taken in.
- Thou shall spend money thinking of your future as well as your present.
- Thou shall remember that compound interest is never retroactive.
- Thou shall not collect credit cards or use them carelessly.
- Thou shall honor always thy debts and obligations.
- Thou shall develop a spending plan, “pay yourself first” by saving money, and start to invest systematically at an early age.
- Thou shall always search for reasonable returns on assets.
- Thou shall take advantage of 401(k) plans or other retirement savings options.
- Thou shall practice dollar-cost averaging in your investing.
- Thou shall obtain a financial education so as to be no one’s fool.
Knowledge + Values + Practice + Guidance = Success
As you continue to educate your children or grandchildren about money, the resources presented in this article will assist you in providing the knowledge and values that contribute to financial success. These principles are by no means a comprehensive guide; rather, you should supplement this information with your own knowledge of money and your deeply held values.
The next two steps to success are incumbent upon you: encouraging younger family members to incorporate this knowledge into their value system through continuous practice; while also offering the guidance and support they need to develop healthy financial habits.
A financial advisor may offer family meetings, educational summits, and other tools to assist you with these steps – ensuring that your insight and values are being effectively conveyed to the next generation.
When taken together, the combination of financial knowledge, time-tested values, consistent practice, and steady guidance will empower your children and grandchildren in their pursuit of lifelong financial success.
