It's been said that every crisis has a silver lining. For many, today's challenging environment presents a unique opportunity to get creative in how we teach the next generation about wealth and the strategies to manage it.
Just as you work hard to secure your own financial future and legacy, it’s also important to ensure that your loved ones can navigate their own financial independence. In my career, I have used quite a few tactics to help prepare the next generation, and I have found the following five strategies to be most effective. But before digging into each strategy, let’s review the basics.
Understanding the Basics
Financial literacy can mean different things to different people, so it’s important to meet the next generation where they are – not where you would like them to be. My clients often have many personal and professional milestones under their belt, so they may have different perspectives from those who are just starting out.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But some financial literacy concepts are universally important, perhaps none more so than this: Understanding the connection between what you do and what you have. Oftentimes, this relationship isn't clear. For example, many younger members of my clients’ families have a habit of spending money without knowing how money is earned. Regardless of age or circumstances, proper financial preparation requires a steady focus on the future.
Preparation also means having conversations with loved ones about finances, which may be uncomfortable or challenging. This might make you a bit hesitant to begin the process. Below are five strategies you may find useful when teaching the next generation about money.
1. Communicate and Collaborate on Money Matters
Engaging your loved ones in frequent, quick and high-level conversations about finances helps keep the topic on their radar and often eases many of the anxieties that exist around these topics. For example, questions can start as simple as what’s something you want to buy that you’d like to begin saving for? Or, do you think your allowance or income is enough? Why or why not? The good thing about these conversations is that you can begin to have them even when your child is young.
Once they are comfortable with these quick chats, begin including them in larger discussions about spending, saving and philanthropy, which can make them feel more involved.
2. Turn Abstract Ideas into Tangible Reality
Children tend to be more engaged in learning when there is an emotional component. Telling the next generation to save more or donate to good causes without explaining why can make it hard for them to understand. Explain your own “why” behind your financial decisions to make these concepts more personal and, therefore, more memorable.
Many clients I work with are motivated to save or give because of something they’ve experienced before, and even if it’s not something your child will experience themselves, it doesn’t mean that you can’t help them see from another’s perspective. Making sure to point out the lessons — such as wanting to preserve a beautiful environment or to help someone in need or to appreciate beautiful craftsmanship — can drive the deeper value of money home.
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. Make a vision board or other visual representation of goals to create a concrete reminder of the future they are trying to create.
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 loved ones a similar way to grow their savings faster, they can learn good behavior that will hopefully stick with them for life.
This is simultaneously a way to instill appreciation for hard work as well. You can choose to give your kids a way to earn money by doing certain household chores rather than giving them a free allowance. You can also reward them more for a job well done.
5. Transform Mistakes into ‘Teachable Moments’
We all make mistakes, but when we see our loved ones falter, it's only natural to want to fix things. However, it's better for all involved if they understand that actions have consequences. Be sure to discuss the situation clearly and calmly with your loved one. If they don't get “bailed out” after blowing an allowance or what they have in savings, they will likely think long and hard before doing it again.
The Path to Financial Literacy
Of course, there's more to teaching the next generation about money than the five strategies above. For those who would prefer to work with standardized curricula tailored to different ages — from kindergarten to 12th grade — and learning styles, the resources from Maryville University are a great place to start. Other helpful information can be found at WNET Education.
Financial education is a journey – and the most important step is the first one.
-
Six Missteps to Avoid as You Transition to RetirementDon't lose sight of your finances when you finally reach retirement. These six classic missteps can chip away at the nest egg you’ve worked so hard to build.
-
Why Does One Claim Jack Up My Insurance After Years of No Claims?Even loyal customers can be hit with an insurance premium hike after a claim, despite going many years without any claims. There's a reason for that.
-
To Future-Proof Retirement Security, We Need Better StrategiesWith retirees living longer and the inequalities that affect women and people of color, the retirement system needs some optimization. Here’s what would help.
-
Here's Why We All Win When Charitable Dollars Go to WomenGiving to charities for women and girls not only has a lasting impact on their lives — it also benefits society as a whole. Here’s how to start investing.
-
For a More Secure Retirement, Build in Some 'Safe Money'To solidify your retirement plan, write it down, reduce your market risk and allocate more safe money into your plan for income.
-
Five Steps to a Mindfully Fearless CareerIf, like many women, you're struggling with imposter syndrome, try developing an athlete's winning mindset. It's as simple as facing one small fear every day.
-
Six Ways to Optimize Your Charitable Giving Before Year-EndAs 2024 winds down, right now is the time to look at how you plan to handle your charitable giving. The sooner you start, the more tax-efficient you can be.
-
How Preferred Stocks Can Boost Your Retirement PortfolioHigher yields, priority on dividend payments and the potential for capital appreciation are just three reasons to consider investing in preferred stocks.
