Tips for Educating Your Family’s Next Generation
The term “financial literacy” typically refers to a person’s ability to understand financial concepts, terms and practices at a level necessary to successfully manage his or her financial responsibilities, such as saving, investing, paying off debt, etc.
Achieving a level of financial literacy is important, but it doesn’t happen automatically. In fact, research has shown that only 57% of U.S. adults are financially literate, as measured by those showing knowledge of at least three out of four basic financial concepts – risk diversification, inflation, numeracy and compound interest.1
Parents and grandparents play a key role in passing along values and financial literacy to the next generation. The following tips can help you leave a legacy of financial literacy.
Tip #1 – Set an example.
Whether you realize it or not, your children are learning from your financial habits. Numerous studies have shown that adult financial capability is a direct result of what is seen, learned and experienced in childhood and adolescence.2 That’s why it’s important to model responsible financial decision making.
Involve your kids in daily financial tasks, such as paying bills and managing your checking and savings accounts. Talk to them about setting financial priorities and the importance of saving for the future. Teach them how credit cards and debt work and about the benefits of compound interest in an investment portfolio. Offer them opportunities to weigh in on the pros and cons of various purchases. Once they’re old enough, consider paying them an allowance for helping around the house so that they can begin practicing their own money management skills.
Tip #2 – Pass along your values.
A person’s financial decisions are largely influenced by his or her values as they relate to money. That’s why it’s important to educate family members not only on financial management concepts but also on your values regarding saving, spending and giving.
Begin by having a discussion about what values are important to you and your family. Then, explore how those values impact decisions regarding money. Encourage your loved ones to share their financial goals, and work together to establish a plan to achieve them. Share any concerns, hopes and fears you have about your family’s financial future, and be open to answering questions.
Tip #3 – Get involved.
If your financial values include supporting charitable causes, a great way to pass along those values is by volunteering alongside your family members. Look for volunteer opportunities that will inspire your kids to continue giving back, such as helping out at an animal shelter or sorting food at a food pantry. Experiencing the needs of others firsthand and feeling empowered to make a difference can set your loved ones up for a lifetime of giving back.
Once your children are inspired to make a difference, decide as a family what causes you’d like to support, and make a plan to do so. If you set aside money each year for charitable contributions, let your family members weigh in on what organizations should receive funds. Following your lead, your kids might even decide to donate a portion of their birthday money or sell lemonade to raise funds. One of the best financial legacies you can pass along to your children is a legacy of giving.
If you’d like help supporting your loved ones’ financial literacy, Creative Planning is here for you. We work with families to help ensure all generations are financially prepared for the future. We can support you in providing financial education to your children or grandchildren, as we develop custom solutions to meet your needs. For help leaving a legacy of financial literacy, or with any other financial matter, schedule a call with a member of our team.