Over the course of their formal education, children will learn a range of skills intended to prepare them for adult life. But is a general education enough to equip them for the financial realities they’ll face truly? From my perspective as an advisor focusing on family finance, investing and wealth management—the answer is a resounding no.
While progress has been made—45 states now require some form of personal finance education, up from just 14 in 1998—many states, like California, still prioritize economics over core financial education. An economics course is valuable, but it doesn’t replace the practical skills required for managing personal finances.
Generally, much of what people learn about money comes from what their parents teach them. Beyond the basics, this is positive because how we use money reflects our values, which can be deeply personal. As parents, it’s essential to have open conversations about money and personal finance. Instilling lessons that will guide children throughout their lives while passing on a legacy of financial responsibility and family values.
Here are some ways to encourage your clients to engage their children at every stage of life regarding money and personal finance, which may make planning conversations easier down the line.
Lead by Example
Demonstrating financial responsibility in your household is critical by involving children in discussions about how income is allocated between current needs, future goals and savings.
Children: Focus on Needs versus Wants
- Lesson: Help young children understand the difference between needs and wants. This foundational lesson can help shape their lifelong spending habits.
- Example Activity: At the grocery store, ask the child to point out which items are needs (bread, milk, proteins) and wants (cookies or toys). Explain why prioritizing needs helps to manage money wisely.
- Story: Share an experience where choosing a need over a want led to a better long-term outcome, like saving for a special item instead of making an impulse purchase.
Adolescents: Ownership of Decisions
- Lesson: Involve teenagers in financial decisions to build ownership and responsibility.
- Example Activity: Encourage adolescents to manage their own budgets from an allowance or earnings from their first job. Guide them in allocating funds for saving, spending and philanthropy, if they choose.
- Discussion: Talk about how making financial decisions now will prepare them for future responsibilities. Share a story where a good financial decision had long-term benefits.
Young Adults: Financial Independence
- Lesson: Teach young adults the importance of financial independence as they enter the workforce or pursue higher education.
- Example Discussion: Discuss the benefits of Roth IRAs or 401(k)s, emphasizing the benefits of starting to invest early and how compound interest can grow their savings, especially while they are in a lower tax bracket.
- Support Mechanism: Offer help with living expenses if they maximize retirement contributions early, which can help emphasize the long-term rewards.
“Comparison is the Thief of Joy” (Theodore Roosevelt)
Impress upon your children that comparing their financial situation to others often leads to dissatisfaction, regardless of wealth.
Children: “Where Did Your Friends Go to Camp?”
- Story: Morgan Housel, in his book “The Psychology of Money”, recounts the story of a rookie baseball player, who, despite earning $500,000 a year, felt “broke” compared to a teammate who had signed a $430 million contract. The rookie wasn’t struggling financially by any objective measure—his salary was far above average. Yet, the immense disparity between his earnings and his teammate’s created a sense of inadequacy.
- Lesson: When children compare their summer activities with their friends, remind them that everyone has different experiences. Have them focus on the fun they had, in addition to the learnings they gained from them.
- Activity: Ask the child to talk about their favorite parts of the summer, reinforcing that happiness comes from experiences, not comparison.
Adolescents: Social Media Influence
- Story: Social media often amplifies pressure to “keep up” with and mimic others. A study by the Royal Society for Public Health links social media use to increased anxiety and dissatisfaction among teens.
- Lesson: Educate teenagers that social media often shows an individual’s best moments, not the whole story. Encourage them to focus on their own goals instead of comparing themselves to others.
- Activity: Suggest a social media break and reduced screen time to help them focus on real-life interactions and their personal achievements versus what others are doing.
Young Adults: Long-Term Perspective
- Story: Warren Buffett is an example of the power of long-term thinking. Most of his wealth was accumulated after he turned 65. As of this year, 99 percent of his $121.5 billion net worth was accumulated after the age of 50.
- Lesson: Explain that achieving financial success is a marathon, not a sprint. Encourage young adults to focus on their own long-term goals rather than short-term comparisons with others.
- Activity: Help them set financial goals and review their progress regularly, focusing on personal growth rather than comparing themselves to peers.
Money is a Placeholder
Explain to children that money has no value on its own—it lies in what it can help you achieve, whether that is fulfilling needs, enabling experiences or securing the future.
Children: The Concept of Value
- Story: Use The Giving Tree by Shel Silverstein to show that true value lies in meaningful exchanges, not money itself.
- Lesson: Teach children that money is simply a tool for exchanging or trading value. Start with simple examples, such as trading toys to illustrate this concept.
- Activity: Play a barter game where children trade items to understand how value can be exchanged without money. Explain how money was created to simplify these exchanges.
Adolescents: Focus on Goals, Money as a Tool
- Story: Steve Jobs is an excellent example of someone who focused on passion and perseverance over money. He lived his dream and the wealth followed.
- Lesson: Help adolescents see money as a tool to achieve broader goals. Emphasize that money should serve their ambitions, not the other way around.
- Activity: Help them set financial goals, like saving for a trip or a big purchase. Use budgeting tools to plan how to allocate their money effectively.
Young Adults: Infinite Human Capital Potential
- Story: Early investments in education and other skills can yield exponential returns. Investing in oneself early can lead to higher earnings and long-term financial success.
- Lesson: Explain the time value of money and how calculated risks and investing in personal development early can lead to significant financial gains later.
- Activity: Guide them in setting up a personal budget that prioritizes investments in education or career development, teaching them how these choices can pay off in the long run.
Lay the Financial Literacy Groundwork Now to Facilitate Easier Planning
Conversations about money should be ongoing and adapted to a child’s age and life stage. Teaching them to understand the difference between needs and wants, the dangers of comparison, and the true purpose of money will not only help them make better financial decisions. It will also foster a healthy relationship with money. This will prepare them to be responsible stewards of the legacy your client has built, making the inevitable discussions about their inheritance seamless when they’re older. The time to start these basic financial literacy conversations is now.
Recommended Resources
- Books: The Psychology of Money and Same as Ever by Morgan Housel
- Websites: Council for Economic Education’s resources on financial literacy, Jump$tart Coalition for Personal Financial Literacy.
Rick Nott is Managing Director at Angeles Wealth Management, a national RIA serving generationally wealthy families.