We have been fortunate over the past couple of weeks to have Liam Cronan join us at Single Point to work on a few projects. Liam is a senior at Thayer who will be attending Bentley in the fall.
In a previous blog we touched on the topic of how to help teach your children about money:
We thought it would be interesting to hear a firsthand perspective on the topic. In this guest blog post, Liam discusses his personal experience with how his family handled conversations about finances.
Some would argue that money and finances, especially those relating directly to the family, are not the business of children. Others may say the processes, not to mention stresses, involved in earning, maintaining, and expanding personal wealth is a topic that should not be a child's concern on the grounds they are too immature to understand it or that their innocence regarding money should be spared. However, keeping children ignorant as to a families assets, how and why their financial decisions are made, or even something as simple as the point of a having a bank account is not only a lost opportunity for valuable life lessons but also places children at a significant disadvantage. Children are naturally curious and are only further intrigued by something they find mysterious or off limits. Money would fall perfectly into this category. Most children, when trying to ask their parents questions such as “how much money do you make?”, “are we rich?”, or “why is their house larger than ours?” will most often be met by a response saying it is impolite to talk about money or income. This reaction, of course, will only make the child want to know even more, begging the question: would it be so terrible to answer questions like these; would it be some complicated and strenuous task to explain? In large part, the answer to both of these is no.
This concept does not necessarily mean handing a form 1040 and a balanced check register to a five-year-old will set them on a path to financial knowledge and success, however keeping them in the dark entirely leaves them unprepared on one of the world’s most universal and important topics. Discussing finances can start with things as trivial as a grocery bill or the reasons why something can or cannot be purchased. When a child receives money for a gift, they can be taught how and why some should be spent while some could be used to start a bank account that will earn them interest. Any one of these can be utilized as an opportunity both to teach them and to spark their curiosity. As they grow older, children can be introduced to more complex topics, which will make intuitive sense based on their furthered maturity and the previously taught knowledge.
Talking about money with children is crucial as it is one of the most important means for teaching them to handle their finances in the future. As these children grow into teenagers, those who are equipped with an understanding of money and family finances will likely be the ones who make sound financial decisions with their own money, who will understand the costs and benefits of the increasing cost of higher education, and will likely not be the ones with a quarter of a million dollars in debt and a degree in ancient Mesopotamian cultural studies to show for it. Sadly, according to a 2014 survey conducted by Citi Group, only fifty-nine percent of parents even feel comfortable talking to their children about their personal finances, twenty-eight percent of them stating it was a topic they considered off limits for a child. By consequence, the forty-one percent are left to surmise what they can and be left in the dark about the rest. This fact means that nearly half of all children will subsequently grow into to relatively monetarily and financially illiterate young adults.
Talking about a family’s finances does not need to be a daunting task for parents, yet so many make it out to be so. Part of changing this fear comes in a willingness to be open on the part of parents as well as overcoming the fear that discussing these topics will be some life-altering and traumatic event for children. For some, the child may not have any interest whatsoever in learning about money (which could be considered a problem in and of itself) but if and when they do, it is imperative that they be given the information to have tools they need, so far as they can handle it in a mature and confidential way. According to an article published in The New York Times on the issue of talking to children about financial matters, discussions about money can being as early as six or seven with something such as a grocery bill or in a larger sense why the parents choose to spend money in the way they do and slowly advance to more complex topics as they age. Moreover, a similar article in Time Magazine furthers this by stating that it is not something to occur once but instead something that is more of a process. They end with a simple piece of advice: if a child asks about money, personal finances, income, or what have you, find out why they want to know, find out what piqued their curiosity.
Personally, my parents were always open and willing to discuss topics regarding money and their finances from when I was very young. My aunt, a forty some year veteran of the banking industry, was also more than willing to answer my questions, foster my curiosity, teach me about the banking and finance industry, and instill the importance of saving money in a bank. As time went on, my parents involved me in their rational behind more complex decisions about their finances. My mother allowed me to come with her to her accountant and watch him file her taxes. However, I was not forced to do this; I was genuinely interested because of the curiosity she fostered in me. She then used this as a chance to teach me what tax returns were and why we were there in the first place. I began to learn about just why my father was so diligent about saving for retirement even though it was decades away, why he (as well as most people of his generation) won’t have a pension set aside for him. Eventually, I was shown and taught about financial advisor reports and all that that entailed, from what the different types of assets meant what level of risk involved, and so on.
That being said, was it beneficial to me? I would answer that with a resounding yes. According to studies taken by Fidelity Investments, over three-fourths of people in “Generation Y” have a genuine interest in talking to their parents about money related issues, and I would consider myself within that group. Learning about money and finances from a young age not only helped me understand first and foremost that money had an important purpose in society but also forced me to slow down and think about its use and how that affected me. Furthermore, it taught me that financial success does not come arbitrarily but rather from a careful setting of goals and a willingness to follow through with them.
Before the next generation of children, the next future of the U.S., can grow into financially literate young adults, the taboo around discussing money needs to dissipate. Parents need to understand the importance of teaching their children about money and finances and to consider a talk about money with their child from an early age as being no less important than any other similar lesson. For me, I do not regret for one moment that my parents taught me this from a young age or feel in any way that it was some destroyer of my innocence. On the contrary, I could not be more grateful for being provided with the tools I need to understand some of life’s most important issues.