Being Financially Savvy is A Family Business
- February 1, 2023
- By: Marcos A. Segrera
Like it or not, we’re all involved in running the “family business.” We worry that our parents might outlive their retirement savings. We’re comforted by the thought that family members would probably bail us out if we got into money trouble. We strive to help our children financially, and we’d often like to bequeath them at least part of our nest egg.
In short, our family is our asset, liability, and legacy. Now here’s the contention: It’s time to build this notion into the way we manage our money.
Here are some of the reasons why and ways how.
Forming positive money habits for yourself was hard enough. Now you have the responsibility of helping your children adopt similar practices. Leading by example is one way, but a more proactive and interactive approach may be helpful. After all, you don’t want to risk your own financial goals because your kids have failed to launch.
If you don’t want your adult children swimming in credit card debt, missing mortgage payments, and constantly asking you for money, your best bet is to ensure these problems never arise by raising money-savvy children. You can do this directly through conversation or indirectly through your behavior. But, of course, both are easier said than done.
Children grow up spending their parents’ money, so it’s almost inevitable that, at some point, they will have a skewed financial outlook. After all, for children, all purchases are free, so why should they fret about the price tag or control their desires?
You can do your best to make your children feel like they’re spending their own money and that they are part of the decision-making process. Most conversations around spending/using money can be a conversation about values. For example, accumulating money to invest for the long term is not just about having the biggest pot of gold. It is about the patience and discipline needed to put your future self and family in a better position. Likewise, donating to charity isn’t simply a tax consideration, but rathera realization that success comes with the responsibility to give back to one’s community.
Use this as an opportunity to stress the family values you want for your family. Some ways you can encourage these values is by giving them an allowance tied to some responsibility and allowing them to drive the decision-making on how those dollars are spent. Once that allowance drops to zero, there are no more dollars. This way, instead of you saying “no” to your children, they will learn to say “no” to themselves.
Once your children enter the workforce, you want them to adopt the “virtuous financial cycle” where they are steadily building wealth.
They will become able to own a home, buy their cars, fully fund their 401(k) plan and their individual retirement accounts each year, and never carry a credit card balance.
The sooner your 20-something children get into this virtuous cycle, the easier it will be for them to meet their goals. To that end, encourage your children with your words and fine example.
Implementing a few financial incentives may also help. Tell your adult children if they scrounge together a house payment, you will lock in some additional dollars or offer to subsidize their 401k contribution at 50 cents on the dollar.
This doesn’t mean you intend to fund their retirement instead of your own, but by getting them started as investors early, you can teach them to adopt that “virtuous financial cycle” mentality, so they can make responsible choices.
Lastly, consider including your children in meetings with your advisor. If you don’t want them to know too many specifics, perhaps a one-on-one meeting with that advisor can make sense. A life event like marriage can be an easy way to nudge your son or daughter into their first “official” financial conversation with a professional. The benefit here is that it will be a professional you trust, with credentials and expertise, so you don’t have to be the one delivering the message. As we all know, source matters.
In today’s world, money skills are equivalent to survival skills. Giving your family this gift is an investment in your family’s future and in future generations. Below are some excellent books that can help you and your family on your journey.