Teaching the next generation about wealth

Preparing those you care about for a financially independent future

It's been said that every crisis has a silver lining. For many clients, today's challenging environment presents a unique opportunity to get creative in how we teach kids about money.

In recent months, many of our clients have faced big changes in their lives, in some cases, even taking on duties that have been delegated to others. For those with children and grandchildren, that's meant playing a more hands-on role in their young ones' education — and teaching the next generation about wealth and wealth management. Just as you work hard to secure your financial future and legacy, you'll also need to ensure that your loved ones can make thoughtful decisions when they're on their own.

Understanding the basics

Financial literacy can mean different things to different people. Our clients often have many personal and professional milestones under their belt, so they may have different perspectives from those who are just starting out. Moreover, what's necessary for young children to learn might not be enough for teenagers. But some financial literacy concepts are universally important, particularly in terms of spending, saving and giving.

Because of this, it's critical that children understand the connection between what they do and what they have. For some, the relationship isn't always clear. Oftentimes, there's a habit of spending money without knowing how money is earned. Regardless of age or circumstances, the focus must remain on the future. You can ensure that your legacy will be successfully passed on by teaching the next generation that hard work will enable them to achieve true financial independence.

Sophisticated, forward-thinking financial decision-making also requires taking certain realities into account. These include opportunity costs — in choosing one option you may forgo another — and cost-benefit comparisons. There's also the time value of money and the magic of compounding.

Getting down to business

The approaches to teaching kids about money can vary greatly. For many clients, discussing finances with loved ones can sometimes feel uncomfortable or daunting, which is why many of us didn't necessarily learn everything we needed to know from our elders.

Teaching the next generation about the values of financial literacy can be challenging, but this doesn't mean that you should shy away from the task. In fact, the easiest approach for most of our clients is to lead by example. By nature, children tend to pay close attention to what their elders say and do. They often see their parents and grandparents as role models for their own lives, especially when it comes to growing and preserving wealth. If you have a thoughtful and consistent relationship with money, it can easily rub off on them. With this in mind, below are five strategies you may find useful when teaching the next generation about money.

1. Communicate and collaborate on money matters

Engaging your children in frequent conversations about finances helps to keep the topic familiar and on their radar. Drawing them into family discussions about spending, saving and philanthropy can make them feel more involved.

2. Turn abstract ideas into tangible reality

Children tend to be more engaged in learning when they experience it through the senses. Telling the next generation to save more or donate to good causes without explaining why can make it hard for them to understand. Taking them along to your financial advisor and showing them how you invest for the future can help them see things more clearly.

3. Highlight the advantages of thoughtful planning

It's not easy for young children — and many teenagers — to understand that delayed gratification can make them happier. Helping them recognize that disciplined saving and investing will allow them to acquire a toy, vehicle or lifestyle they really want can reinforce the benefits of acting responsibly.

4. Help them learn better with incentives

A central tenet of economic theory is that incentives influence behavior. This helps explain why, as research firm Cerulli Associates found, the majority of employees say an employer 401(k) match "was the reason they started saving for retirement." By offering your children or grandchildren a similar way to grow their savings faster, they can learn good behavior that will hopefully stick with them for life.

5. Transform mistakes into "teachable moments"

We all make mistakes, but when we see our children do the same, it's only natural to want to fix things. However, it's generally better for all involved if they understand that actions have consequences. If they don't get bailed out after blowing an allowance or what they have in savings, they'll probably think long and hard before doing it again.

Keeping your children on the path to financial literacy

There's more to teaching your kids about money than these five strategies. For those who would prefer to work with standardized curricula tailored to different ages and learning styles, the resources from Maryville University are a great place to start. Other helpful information can be found at WNET Education.

At a time when the world is changing fast, parents and grandparents may be reflecting upon how we teach kids about money to ensure their financial future remains in educated hands.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of Silicon Valley Bank, a division of First-Citizens Bank and First Citizens BancShares, Inc. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein.