I was chatting recently with an associate who said, “Kids don’t appreciate money nowadays; they think money grows on trees!” This is something I often hear, whether from my friends, colleagues or clients. If you put a group of parents together in the same room, I think 90 percent of them will complain about the same thing: Kids don’t manage their money well or appreciate the value of a dollar.
The topic of financial literacy and kids is a common denominator across all clients, and it’s imperative that we start teaching about this topic at a young age. Despite the abundance of advisors in the marketplace, there aren’t many who hit the mark when it comes to helping clients handle their children’s relationship with money. Ideally, we should help children understand the four key areas of personal finance: saving, spending, investing and donating.
Why Financial Education Matters
Everyone deals with money. Whether you have $1,000 or $10 million, it’s essential for everyone to learn money management skills at some point in life. Unfortunately, when consumers don’t have the level of financial literacy that they need, they lack confidence and get stressed about finances. This eventually leads to consumers making less-than-ideal money decisions.
In fact, a recent study from the Million Dollar Round Table (MDRT) proved this by looking at the financial confidence of Americans who have hired a financial planner versus the confidence of those who haven’t. People who never hired a financial professional were fairly confident about simple terms such as “life insurance” (51 percent) and “401(k)” (52 percent). However, they felt unsure about more advanced terms such as “long-term care insurance” (31 percent) and “annuities” (28 percent).
Unsurprisingly, the more confident consumers feel, the better are the financial choices they make. The study also shows that only 19 percent of Americans who never hired a financial professional have a long-term financial plan for the future. On the other hand, 50 percent of those who have hired a financial professional have a long-term financial plan for the future. Evidently, financial planning and education are keys to feeling confident about your financial decisions and ensuring that you have the best financial future possible.
The parents I’ve worked with actually seem to know this better than anyone else. Many adults my age remember money being a taboo subject in the home when we were younger. This is probably why many of my clients and I are so passionate about educating kids about money and personal finance. However, because our parents avoided these types of conversations, adults in my age bracket, 40 to 50, aren’t as well-versed in financial information as we might like to be. The good news is that today’s parents are getting smarter and opting to have a more open dialogue about money and finances within their households.
Our Method: Provide Resources, Let Parents Teach
Unfortunately, very few places are equipped to handle these types of money conversations. While many believe that early financial education should begin in school, the reality is that school budgets are stressed and teachers may not have the correct expertise to instruct on the subject matter.
Most financial advisory firms are already stretched thin, so it would be impossible to schedule meetings with every client’s child. Even if we could, we might not want to. I believe the best lessons to teach about money happen within one’s own household. Our method is to encourage our clients to be ready to discuss these topics as they come up naturally over time instead of our trying to provide expertise one-on-one.
For example, children may start financial conversations when they ask how much money a parent makes, when they can start receiving an allowance, for a gift without looking at the price, or how much their house costs. You’ll notice that many of these conversations are more about family money values, which is why it’s important to learn these lessons from parents. I believe it’s better to educate your clients and provide them with resources to have those conversations in their own homes. Naturally, the types of resources you provide will depend on the age of the client’s child and the financial subject matter that interests the child. This way, you can help your clients guide healthy, age-appropriate conversations about saving, spending, investing and donating.
A Win-Win Solution
We are the stewards of our clients’ financial lives. Many of the decisions and recommendations we make have an impact on our clients’ family money values. Because of this, having conversations about their kids’ financial futures can only enhance our relationships with our clients. It is a subject that matters deeply to them and allows us to foster great connections beyond normal financial planning.
Ultimately, it’s not so much the content of these financial conversations as it is having the dialogue. Much of the financial planner’s job revolves around providing a solution to a problem. However, in working with my clients and their children, I came to realize that they are not looking for a solution as much as they are just looking to talk. What clients really need is someone who can simplify the complex and make them feel good about the decisions that they’re making.
This philosophy extends to financial education as well. If you manage to help clients feel good about their financial future and their children’s financial future, you all win.
Thomas J. Henske, CFP, ChFC, CLU, CLTC, CFS, CTS, CES Partner, is a partner at Lenox Advisors. He developed a program called Money-Smart Kids that provides tools and information to foster independence, good judgment and responsible habits in children of all ages. He is a 16-year member of MDRT with two Court of the Table qualifications. He may be contacted at [email protected]