Jul 22, 2022

A Practical Guide to Creating Healthy Money Mindsets In Your Family

Jul 22, 2022
Sabrina Rosh — CFP®
Wealth Architect
There’s not one “right” way to talk to your child about finances; the only mistake is avoiding the topic altogether. Many of us were taught that discussing money is taboo, even within families. While complete financial transparency is not always necessary, open dialogue is. Money conversations are different in every household because of unique family dynamics, history and financial makeup. It’s worth taking the time to figure out which approach makes sense for you and your family. 

As a financial advisor, I’m often asked by clients and friends with kids how they should go about creating a healthy financial culture in their family. I tell them it’s a combination of modeling good attitudes and values around money to their children, while teaching them pragmatic skills along the way.

Reframe Scarcity

When my parents gave me a pink Minnie Mouse wallet for my allowance earnings, I remember feeling a sense of ownership and confidence that I hadn’t known before in my young life. When I took it to the register to make a purchase, I felt empowered; like a grown up. I’m sure I never had more than $30 in that wallet but, as a child, I felt rich.

My family was of modest means, but I didn’t realize that until I was much older. My best childhood memories were made on our family camping trips–an economical choice that my parents infused with a full slate of activities and a spirit of adventure. We had no awareness that barbecuing and eating s’mores over an open fire was cheaper than restaurant dining. They framed it as a five-star family experience and, indeed, it was.

The language my parents used also helped instill a healthy relationship with money. Instead of “we can’t afford that,” it was “we’ve prioritized other things” or “that’s an option if we save for it.” Money was associated with intentional decision-making, where the power was in our hands. The focus was never on what we couldn’t do.

Appreciate Abundance

I have worked with quite a few wealthy clients who, despite having financial abundance, operate from a scarcity mindset. Living “abundantly” doesn’t mean irresponsibly; it means allowing yourself to spend what you can on the things that bring you happiness – your child’s birthday, a piece of art, flying first class, making a generous donation to a cause that’s important to you. It comes down to achieving an optimum balance of building wealth while also spending it in a way that is meaningful to you and your family.

Naturally, a parent’s relationship with personal finance tends to impact their child. Your relationship with money has been influenced by generations before you (even if you don’t realize it). If mom and dad are always stressing about expenses and not having enough, their child will inherit that ethos of financial angst and dissatisfaction with what they have. Even if they are wealthy by most standards, perception is reality. Take the time to identify any negative cycles you may have around money that aren’t serving you or your family. Then you can work on breaking them. 

Money is a tool, not an end goal. Spending money on the things and people you love is a worthy investment. Enjoy it and let your family in on that joy. 

Facilitate Financial Education

In conjunction with projecting healthy attitudes toward money, there are hands-on steps you can take to teach your child positive money habits. Below are some suggestions based on developmental stage.

5-11 Years Old – Introduce Them to the Basics:

          • You can begin teaching about the value of money and what it means to earn it. Use physical cash, as the concept of a bank account and credit cards is too advanced.
          • Consider giving an allowance of an amount that feels appropriate to you. As the child grows, their responsibilities and allowance should, too.
          • Talk to them about spending, saving and giving. You might urge your child to divide their earnings equally among these three categories. Discuss the types of things they can buy or do with the amount of money they have to spend and help them understand that they sometimes have to make tough decisions.
          • TOOLS: A piggy bank (like this one); a financial literacy app for kids (e.g. Practical Money Skills)

12-17 Years Old – Foster Independence:

          • Explore concepts like credit and debit cards, bank accounts, making a budget and setting goals.
          • Encourage them to engage in a part-time job (e.g. tutoring, babysitting) and/or volunteer work.
          • Help them set up a checking and savings account.
          • Openly discuss budgeting and costs that apply to your child. Don’t guilt them about the price of karate lessons or summer camp, but explain that you have a budget and your child has options within it.
          • Give them agency in philanthropy discussions. Ask them to research and find a cause they care about – perhaps they can volunteer in that area or designate a portion of your philanthropic budget to a charity of their choice.
          • TOOL: A credit or debit card for teens (e.g. the Fidelity Youth Account)

18+ Years Old – Help Them Navigate Work & College Years:

          • Continue to encourage a part-time job and/or volunteer work. If your child is earning income, talk to them about investing and tax returns. You might ask your financial advisor or CPA if they’d be willing to sit down with them for an educational session.
          • Plan intentional budget conversations. Set aside time to assist your child with building a budget and encourage them. Schedule regular check-ins to revisit and revise that budget to help cultivate healthy habits as they become more independent. 
          • Inspire them to take their philanthropic participation to the next level. Help them create a personal charitable giving plan. If your family has a foundation or donor advised fund set aside, invite your child to be a decision-maker in the distribution of funds and selection of beneficiaries.
          • Consider setting up an investment account to encourage your child to explore capital markets and experiment with investing. Parents can put any amount they deem appropriate into the account, providing a controlled environment in which their child can practice investing firsthand and learn by trial and error.
          • TOOL: Khan Academy’s Finance and Capital Markets course

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