Financial Illiteracy Series Part II – parental contributions

All learning begins at home and financial literacy is no exception.  Our parents are critical in shaping the way we value money and how we manage it when we become adults.  If you were fortunate enough to have parents that instilled a sound core philosophy on personal finance, count yourself as lucky.  The unfortunate fact is that most parents simply don’t teach their children much of value when it comes to money.

Talking Money is Taboo

Most parents avoid having money conversations with or in front of their children.  They teach their children that it’s impolite to discuss finances with others and that these talks should be held behind closed doors.  As a result, children are starved of important financial knowledge and often go through childhood in a sort of bubble–oblivious to the real world.

Shelter Creates the Storm

By sheltering their children from the hard realities of life and money, they hope to maintain their children’s innocence for as long as possible.  The problem here is that when their children finally go out in the real world, they get smacked in the face with tough lessons from a financial system that cares little about their well being.  Many with parents that are at least moderately affluent will wind up returning home after taking their licks and become boomerang children, sometimes living with mom and dad into their thirties.

Economic Outpatient Care

This return home or whatever help parents might give to their children has been called economic outpatient care by the authors of The Millionaire Next Door.  Research unveiled in this important book on the habits of America’s wealthy clearly demonstrates that supplying children with seemingly limitless resources hurts children far more than it helps.  In their research, they found that children of millionaires that did not receive subsidies from their parents after leaving home were far more likely to become wealthy themselves.

Takeaways

To do a good job as a parent on money matters, you need not be a financial expert, but you do need to teach your children the fundamentals of dealing with their finances.  The most important ways parents can help their children with handling their money are:

  1. Set a good example – if your actions tell the story of sound financial management, your kids will certainly benefit from this
  2. Involve them in the conversation – rather than keeping your money discussions behind closed doors, let your children have a seat at the table and when they’re ready, let their voices be heard
  3. Expose them to reality – regardless of your current financial position, let your kids know about the good, the bad, and the ugly so they understand that life is full of ups and downs–particularly when it comes to money
  4. Let them stand on their own – barring a major catastrophe in their financial lives, refrain from subsidizing their lives and help them take greater personal responsibility in managing their finances

The bottom line with parenting and money is that you need to have an open and honest dialog with your children.  Prior generations have seriously missed on this teaching opportunity, so don’t let it slip by.  I can think of few greater disservices to our youth than treating them like lambs only to be fed to the wolves later.  If we’ve learned anything during this, the toughest recession in a generation, it’s that financial literacy is not optional.  Talk to your kids; they’ll be better for it.