As financial planners, we help clients with important decisions regarding wealth transfer – how to ensure that money is passed on to the next generation most efficiently.  However, the financial values or financial legacy that is passed down to children can be much more important.  Children who are effective stewards of wealth tend to have parents who intentionally communicated and modeled their own financial values.

We all have ingrained feelings/values about money, many of which are influenced by childhood experiences and the values of our families.  As parents, it is important to think about what financial values are important and then communicate those consistently.  This can be done in formal discussions or even family meetings, but more often they are communicated by example, experience or informal discussion.

For young children, an allowance is a great hands-on learning tool.  You can use it to teach concepts about earning money, trade-offs in spending, savings or even philanthropy.  As children are allowed to make financial decisions, they learn valuable lessons in responsibility.  Nothing beats hands-on experience for learning about spending.  Making a mistake with a small amount of money is less costly than the damage that can be done by an inexperience college student with a credit card.  Providing guidance and boundaries to young children while allowing them to begin making decisions can reap huge rewards.

If philanthropy is a core value, there are many ways to start teaching that value early on in a child’s life.  Some families involve their children in decisions about which charities they give money to each year.  Learn about the different charities and bring your child along to volunteer.  Look for local charities with which your children can connect (for example, one providing school supplies or food to kids less fortunate). 

Questions like “Can I have that new video game/toy/etc?” can be a great opportunity to discuss spending decisions.  These informal conversations give you the opportunity to go beyond a simple”no” answer and explain the values behind that answer.  Not that every trip to a store needs to end in a lecture, but using some of these opportunities to teach values will pay off in the long run.

The value of savings can also be taught in various ways.  A family vacation could be an opportunity for all to save together for a short-term goal.  We have found that “matching” contributions can be a powerful tool for parents to encourage savings.  With a matching system, the child has to make some sacrifices or have some “skin in the game”.  Matching can be on routine savings from allowance or toward larger savings goals, such as a car or even college. 

We encourage our clients to be intentional about sharing their values with the next generation.  Start early and consistently communicate over the years to ensure they will be good stewards of funds they may one day inherit.

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