Financial Planning with the Next Generation
By Will Nelson, Managing Director - Head of HilltopSecurities Independent Network
Financial literacy and personal finance are not always taught in schools and that leaves the parents to do the job. Unfortunately, money can be a touchy topic in families — some parents either don’t feel equipped to teach their kids, or they don’t think the family finances are any of their children’s business. But, if it is put off for too long, problems can arise in both securing a legacy and ensuring the next generation is prepared to make wise financial decisions.
Children begin to learn at a young age that money is exchanged for things. They may not be capable of understanding the nuances but they see how it works. That is why it is so important to start educating them about finances as soon as possible.
Early Childhood — From ages three to five, the executive function begins to develop in children. These are the mental processes that allow them to plan for the future, focus, remember and multitask. This is also the age where they begin to recognize that money is a means of getting things.
To help them understand the value of money, you can involve them in the process of family grocery shopping, pointing out differing prices and talking about why you make the decisions you do. Children are sponges and they learn more watching what you do than listening to what you say. Use cash instead of credit/debit cards and checks so that they do not get the idea that items are free with a magic piece of plastic or paper — there is time to explain credit later.
Middle Childhood — In elementary to middle school, when kids are 6–12, they begin creating financial habits and norms. These “attitudes and mental shortcuts” will help them make financial decisions throughout their lives. This is an opportune time to start giving them an allowance. You can also help them begin to understand budgeting and saving by setting up separate jars or banks for them to allocate their money to short- and long-term goals, pocket money, and giving. Explain what you, as parents, are responsible for covering — food, housing, clothing — and what they need to use their own money to purchase.
High School and Young Adulthood — When kids reach high school, they have a good idea about what money is, how it works and what they can do with it to meet their needs. From ages 13–21 and up, it is important to help them become financially literate, providing them with opportunities to gain financial knowledge and hone decision-making skills. Prior to getting a job, or if they are mowing lawns or babysitting, take them to a bank and open a savings account. Learning about financial institutions and how to navigate basic banking behaviors will give them confidence.
When they are old enough to get a job and receive a paycheck, open a checking account with a debit card. Use their paycheck to teach them about taxes, Social Security, health care and disability. And, when they become old enough, bring them into the financial planning process.
Financial Planning with the Next Generation
Most parents do not instinctively involve their children in the financial planning process, but that can be a big mistake. If children are unfamiliar with the family’s finances they may get the wrong idea about money, assuming their family is poor and taking unnecessary stress upon themselves or, conversely, deciding they are boundlessly wealthy and developing a lack of appreciation for the value of money. In either situation, the child is harboring inaccurate views of the family’s resources, which can have long-term effects on their relationship with money. It is crucial that you take steps to make sure your kids learn about finances from you and not other sources or unfounded assumptions. Any discussion about your personal financial situation is a teachable moment, an opportunity to show children how to properly manage the family’s resources while saving for the future.
As they get older, the involvement becomes different. When you get into more complicated financial and estate planning, it is wise to use your financial advisor as a trusted resource. The sooner you bring your children into the fold, introducing them to your advisor and fostering a relationship, the sooner you begin to secure your legacy.
There are numerous examples of advisors who have worked for years with a couple or individual to build a substantial, well-performing portfolio only to see it descimated when they pass and the next generation inherits. Having never built a relationship with the beneficiaries, many times they must stand idly by when the inheritor withdraws the money and makes unwise decisions. Most often, investment portfolios are built around long-term assumptions and strategy. Moving assets or selling them off can be detrimental to the investor and their heirs. An advisor who is intimately familiar with your finances and your family can prevent that and prevent the destruction of years of planning.
Protect Yourself and Your Loved Ones with Long-Term Care Insurance
HilltopSecurities believes in comprehensive financial planning that includes educating and involving the entire family. Our approach, the Certainty Circle of Life, takes into consideration all aspects of your financial life from covering your basic needs and building your savings to ensuring that you and your finances are protected. Our advisors can provide straightforward advice on various insurance products, providing security and peace of mind. Using our goals-based planning software, MoneyGuide Pro, we can help you determine the level of protection you need and adjust your portfolio accordingly. Our advisors are client-focused and relationship-oriented, helping you articulate your definition of success and reach it.
Additional Resources for Financial Education
- CNN Money: Money Essentials
- Federal Reserve Education
- High School Financial Planning Program
- Nebraska Bankers Association: Financial Links for Kids and Adults
- Smart About Money — free online courses by the NEFE to teach financial education
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