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Five tips to prepare your kids for financial wellness

August 10, 2022 Article 7 min read
Jaime Eckels Wealth Management Emily Aepelbacher
Not sure how to talk to your kids about financial wellness? Here are some tips to get the conversation started — for all ages.
A family sitting at a kitchen table in the morning.Parents want the best for their children. We want them to dream big, achieve their goals, and most importantly, live a life filled with happiness. As parents, one responsibility is to help instill core values that will create a solid foundation for children to build a fulfilling life upon — one that inspires confidence, ambition, and informed decision-making. To that end, there’s one thing that affects us all when it comes to building our lives — a constant consideration in all major decisions we make. It has significant influence on our day-to-day activities, long-term plans, and our lifestyles. Yes, it’s money!

Talking about money isn’t easy for everyone. Often it seems as though people would rather discuss politics than finances. However, money doesn’t have to be such a taboo subject, and the earlier we start talking to our young ones about it, the better they’ll be at making prudent financial decisions later in life. Not sure where to start? Read on for tips to help teach your kids about money and how to achieve financial wellness at various stages of their lives.

1. Be intentional when discussing money

Most children start to form thoughts, feelings, and opinions about money from watching their parents. This happens sooner than many expect. Children may observe you at the store or overhear you discussing the monthly budget with your partner. This is a great opportunity to get an early start guiding them into financial literacy and encouraging questions along the way. The best way to empower them is by being a good role model yourself.

Talking about money doesn’t have to be awkward! Try to normalize financial concepts slowly by introducing them into your daily conversations. Look for opportunities to explain what money is, how it works, and your thought process on deciding when and where to spend (or save) it. As the kids get older, expand on the art of budgeting, how to recognize “wants versus needs,” and the importance of opportunity cost and delayed gratification.

Look for opportunities to explain what money is, how it works, and your thought process on deciding when and where to spend (or save) it.

2. Teach kids the value of earning money

Once your kids understand what money is, show them the importance of earning it. Consider giving them an allowance — perhaps start with a certain base amount weekly, monthly, etc. — and offer them the chance to earn more if they take on additional household chores. When they’re old enough, encourage them to take on a summer or part-time job. The objective is for them to have their own money and the opportunity to make decisions on how to handle it. This new cash flow will show them how a budget works in action. Maybe they’ll make a purchase that they regret — a perfect opportunity to learn a lesson about being thoughtful with spending. After all, it’s much better to learn from a regretful impulse purchase that was only $25 versus $25,000 later in life.

Once your kids understand what money is, show them the importance of earning it.

3. Focus on the benefits of saving

Once your kids are earning money and having a little fun spending it, it’s a good time to refocus on the benefits of saving. Learning how to save is one of the most important lessons your kids will ever learn about money. Being disciplined and spending less than you earn while being smart with your savings is the fastest road to financial independence. Have them learn to budget by allocating money into three chunks: spending, saving, and perhaps giving if you’d like to educate your children about being charitable. Help them understand how to allocate money to their short-term cash needs and to save what’s remaining. Stress the importance of flexibility and how saving will help them meet future goals.

With younger kids, you may have more success by teaching them about short-term goals and planning — perhaps start by saving from a few allowance payments to accumulate enough money for a new video game or toy a few months from now. The older ones can focus on longer-term goals such as saving for college, a new car, down payment on a house, wedding, retirement, and other adulthood expenses.

4. Help them open a bank account

As the kids show more responsibility with money, they’ll be ready for the next chapter in their personal finance journey — learning to manage a bank account. Consider starting with a savings account so they can see their money earning something. Most banks and credit unions offer custodial accounts so that you’ll have oversight of your kids’ money. These accounts can be set up both quickly and easily online or at your local branch. Make sure to point out the annual percentage rate on their savings while reviewing their first account statement with them and highlight the “interest earned” section. This will be very exciting as they realize that their hard-earned money can be used to earn more money! While the interest earned may not be much, it helps get the wheels turning and eventually prepares them for more advanced concepts such as the time value of money, compound interest, and investing in general.

Consider using basic online models to illustrate how invested money has the potential to grow significantly over the long term, especially if they start at a young age. You won’t typically see those types of return assumptions on a traditional savings account, which brings us to our last topic — investing!

5. Show them the value of long-term investing

When the time is right, consider opening a custodial investment account at a low-cost brokerage. A custodial investment account is usually managed by a parent or other guardian, but the assets belong to the child as beneficiary. Upon reaching the age of majority (governed by state of residency), the account is turned over to the beneficiary to begin managing on their own. Your financial advisor can further speak to the benefits and tax implications of a custodial brokerage account. If the beneficiary has earned income, you could also consider a custodial Roth IRA for the tax-free growth benefits.

When the time is right, consider opening a custodial investment account at a low-cost brokerage.

Opening an investment account for your child may seem daunting given the inherent risk of the stock market. However, as we previously stated, money that’s not needed in the short-term has the potential to earn significantly more than a savings account over the long term. Your children will have a long-term horizon for the funds to recover from potential short-term declines. Whether investing in individual stocks or diversified investments, keep in mind that your child will experience short-term volatility at some point and they may get upset at the first sign of an investment loss. This presents another learning opportunity because it likely won’t be the last time they experience short-term declines. Living through their first bout of volatility will provide many lessons and emotions and help them mentally prepare for life’s uncertainties.

If your teen is interested in purchasing individual stocks, perhaps you can suggest they limit a smaller percentage of their account to these purchases. Individual stock picking can be exciting as your kids start to learn about how businesses and markets work and how stocks respond to world events, but it can be more volatile when compared to a diversified approach using mutual funds, ETFs, or target date retirement funds. Make sure to have your child do their research when picking individual stocks and have them explain to you why they picked the stocks they did. Also, have them research more conservative investments such as bonds, purchased money market funds, certificate of deposits, etc., and compare the relative risk of each type of investment. You may just learn something from your kids in the process!

Have your child do their research when picking individual stocks and have them explain to you why they picked the stocks they did.

Final thoughts

Financial wellness starts with an awareness of money and savings early on. There are many lessons to be learned, but they won’t all be learned overnight. New lessons and concepts will appear during different stages of your kids’ lives. Teaching them will require some planning, intentionality, and patience on your end and practice on theirs. However, it will be time well spent and your kids will thank you for it later as their earnings are well spent (and saved)!

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