As increasing number of planners adopt a holistic approach to their clients' money matters, many are taking a closer look at the relationship they have with clients' children. "With every client that comes in–in the interviewing stage–we talk about what financial planning is and then we tell the client there are a lot of things that aren't normally considered financial planning, including how to teach your children proper values and responsibility as it relates to money," explains Charles Foster of Blankinship & Foster, a family wealth advisory firm in Del Mar, California. "And all of a sudden, parents, and even grandparents, really perk up," he adds.
Parents want their children to be self sufficient and financially literate, but many are unsure of how to achieve these goals and may look to an advisor or education program (see Cash Camps for Kids sidebar) to help them raise financially fit kids. For advisors, it's a great way to offer value to your current clients and build a relationship with the next generation.
Some advisors are surprised when the children of their recently deceased clients place the inheritance with another advisor. Many times, this happens because the younger generation does not have a trusted relationship with their parent's advisor.
Get 'Em While They're Young
Foster believes advisors should begin discussing their clients' children's money education at an early age. Parents usually think or ask about it way too late. "I've had clients come into the office with a child around 16 or 17, who is going to college in a year or two and has never had any responsibility or any opportunity to show any responsibility with money," he laments. "And that's a crime. A child should at least be able to make good decisions about money before 10 years old."
Unfortunately, according to a report conducted by StrategyOne on behalf of Charles Schwab and the Boys & Girls Clubs of America earlier this year, that isn't the case in most households. The online survey, which polled 1,000 American teens, found that nearly two-thirds (62%) of them believe they're prepared to handle adult financial responsibilities after high school, yet other parts of the survey don't back up that belief. Just 41% consider themselves knowledgeable about budgeting, 34% know the procedure of paying bills, and only 26% understand how credit card interest and fees work–the most startling of the three, since these kids will be attacked by credit card companies the minute they walk onto a college campus in a couple of years.
The Early Stages–Assisting The Parent
For elementary school-age children, it may be helpful to offer parents tips about allowances, as well as bank and investment accounts. Point out the advantages of starting to invest and save early. "After age four or five is the perfect time for parents to provide an allowance from which the child gets to make some of his own decisions," Foster suggests. "The parent should use trips to the grocery store as a chance to teach the child. If the child has money to use, they can participate in the spending process."
After children learn how to use their allowance to spend, the next step is money management. Psychotherapist and money coach Olivia Mellan suggests that the allowance be distributed among different colored jars: one for spending, one for saving/investing, and one for charitable giving. A fourth can be added for education, as well. This is a way for children to learn and see what their money can do for them. Susan Bradley, financial planner and founder of the Sudden Money Institute and creator of Money Camps, Inc agrees. "Children should have four choices with money: saving, spending, investing, and sharing, and parents should have conversations with kids about the four choices," she says. "It helps families convey value systems and helps kids understand that money is not just for spending. Children learn they can get whatever they want, but it takes time and discipline."
Mellan also suggests that parents keep children and young adults aware of the family financial situation so they can learn from their parents' actions. Encourage clients to talk through large purchases with their spouse or another family member within earshot of the child. Remind clients that while kids may not be picking up their messy rooms, they are picking up parents' money messages. "Parents can teach kids to be good consumers," says Bradley. "And parents solidify their own skills while doing this as well." Generally speaking, the more a parent talks to their kids, the better; and the planner can help facilitate the process.
