One of the fascinating experiences of growing older is watching other people’s children become adults. For the last 20 years, I have observed children in my community grow up in a consumer culture, and how different choices made by different children in similar situations have had a profound impact on their future financial outcomes. Here are 3 things I have witnessed:
1) The wealth of a child’s parents has proven to have little impact on a child’s future ability to manage money. I have seen children raised in humble surroundings grow up to be remarkable financial stewards, and I have seen children of the wealthy develop into spendthrifts. There is zero correlation between a parent’s balance sheet and their children’s future ability to manage their own finances.
2) Parents who pay 100% of their children’s college tuition don’t help them become better future money managers (and children who go to college on full scholarships don’t manage money much better). College is often the first place a young adult learns to make choices about necessities (i.e., rent, food, utilities). Many parents of means feel it is reasonable to pay their children’s college expenses, expecting their children will have more time and energy to focus their attention on academics; however, I haven’t seen any evidence that children who don’t earn money during college get better grades. Upon graduation, those students who worked through college and paid for at least some of their expenses, have demonstrated better money management skills and more lucrative work prospects than those who completed college without part-time work.
3) Parents who intentionally teach their children about money management before middle school tend to produce better future money managers. Bar none, intentional financial instruction by both parents has produced the greatest number of children who grow up to be good financial stewards. It is critical that age-appropriate basic financial principles be taught at a young age before the children are old enough to get their money cues from the culture. Many parents require their children to tithe, save, and invest, before spending. For others, shopping becomes a learning opportunity to drive home important money principles. Many of my clients who have raised financially savvy adults asked me years ago to partner with them in teaching their children about saving, investing, and goal setting. By saving money starting in high school, these children have built a relationship with a financial professional whose money values are similar to their parents.
There are a couple of caveats to my observations. Even though parents may teach all their children the same sound money principles, not every child will heed them. Some strong-willed children will reject sage advice, much to their parents’ disappointment. Secondly, if one parent is good with finances and another a free spirit with the family’s money, the children will tend to follow the example of the less disciplined parent. Parental unity on money management is critical for ensuring children don’t get mixed messages.
We all want our children to be happy adults. By teaching them while they are young age appropriate skills and values of good stewardship, we can ensure they are equipped to survive in a consumer culture.