Empowering the Next Generation: Strategies for Teaching Children Financial Literacy and Responsible Wealth Management
Cliff Locks
Mentor & Strategy Expert | Independent Board Director/Advisor | Best-Selling Author | 3x Founder Each Company Sold | Next Generation Mentor | Family Office & Enterprise Specialist | Podcast Guest | Exec. Ascend Program
Guiding children on the right path toward wealth is an ongoing conversation that should begin early and continue throughout their lives. It is essential to educate and guide children and young adults about inheritance and the responsibilities that come with it. The messages and lessons we learn about money as children and young adults, along with the behaviors we observe in our families and communities, influence our long-term financial decisions. As parents, it is essential to teach children prudent financial decision-making through delayed gratification, responsibility, and autonomy. Here are some strategies to help families prepare their children for wealth.
Start the conversation early and often
Parents and caregivers should teach children delayed gratification, responsible choices, and independent decision-making through small everyday lessons starting at a young age. As children grow older, they begin to understand disparities in wealth and may ask questions about money. It is crucial to be honest and explain that experiences like vacations are expensive, but for the family to be together, it is essential to prioritize taking nice trips together during school breaks.
For older children, parents should initiate discussions about spending and saving decisions, such as what to do with their first paycheck and how to use a credit card responsibly. Parents should also share their spending, saving, and giving habits with their children and explain why they make those decisions.
Teaching children life skills through the Boy Scouts program
The Boy Scouts program welcomes both boys and girls and teaches important life skills, including financial management and planning. The Personal Management merit badge covers topics such as budgeting, banking and credit, insurance, investing, and taxes. By teaching Scouts about these topics, the Personal Management merit badge helps them develop life skills that will serve them well throughout their lives.
Yes, youth should participate in Team Sports, Leadership Development Clubs, and Scouting.
Be prepared – not scared – when it comes to hard questions
Children may ask difficult questions about money that parents may find challenging to answer. However, parents should not be afraid to admit that they are uncomfortable and do not have all the answers. Using a tough question as a jumping-off point for a conversation can lead to learning more about their child's thought process or a decision they are contemplating. It is essential to be transparent about why parents are or are not answering the questions and not shut their children down.
For young adults, 20 or 30-somethings who may be planning their own families soon, hard questions may indicate that they are grappling with their financial future. Parents should strive for transparency when making decisions about wealth that affect their adult children. Wealthy families have different approaches to benefitting their adult children, from providing only a good education to allowing them access to substantial wealth. For most families, the answer lies somewhere between these two options, such as paying for grandchildren's tuition or helping with a down payment for a house.
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Educate children on philanthropy and giving back
Teaching children the value of philanthropy and giving back can instill values that last a lifetime. Parents should encourage their children to participate in charitable activities or donate a portion of their allowance to a charity of their choice. Parents can also introduce their children to the concept of a donor-advised fund (DAF), which allows donors to make charitable contributions to their DAF and recommend grants to their favorite charities. This approach can help children understand the impact of their charitable giving and instill the value of philanthropy.
Teach children to manage wealth responsibly
As children grow older, they will eventually become responsible for managing their wealth. Parents should encourage their children to seek out professional advice on managing their finances, such as financial planner, accountant, and an attorney. Children should also learn about different investment options and strategies, such as stocks, bonds, and mutual funds, and the risks and benefits of each. Parents can also teach their children to diversify their investments and avoid taking on too much risk.
A family mission statement is a document that outlines the values, goals, and beliefs of a family. Creating a family mission statement can help families align their actions with their values and create a roadmap for their financial and personal lives. Parents can involve their children in the process of creating a family mission statement, which can help them understand the family's values and goals and how they fit into the family's plans. The family mission statement can also serve as a tool to guide financial decisions, such as how to allocate wealth and resources to support the family's goals and values.
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