The Money Taboo

Parents of all income levels struggle to talk to their children about money for a multitude of reasons. Some were raised in households where their parents told them it wasn't polite to talk about money. For others, their financial portfolio is a reflection of all of their decisions, whether right or wrong. Still others simply have a strong emotional attachment to money.

The difficulty comes when we acknowledge the need for change, but fail to take action. Given the current financial crisis, I think most of us can agree that the way we think about money has to change.

To explain what I mean, I would like to share a story.

A friend of mine recently shared that she grew up in a household where her family didn't talk about money. If they did, it wasn't shared with the children. She was set to receive an inheritance when she turned 18 years old, but, like most parents, hers worried that the money would be squandered quickly if she received it at a young age. In the years leading up to her 18^th birthday, her family battled for years to build a trust that would, as she stated, "protect me from myself." The trust was set up so that she would receive incremental payments between the ages of 18-25. In the end, her mother came to her one day and said "grab your driver's license; we're going to the bank." Her mother proceeded to drive her to the bank to sign papers and legal documents releasing the money to her. What her parents failed to do is explain why she was there and what it meant for her, or even try to guide her in how to manage this inheritance. She was left to fend for herself.

To shed some additional light on the story, at the time she received her inheritance, my friend didn't even know how to balance a checkbook. Could this situation have been handled in a better way, one that would have positioned my friend to be successful in managing the money? In my opinion, the answer is yes.

This story is very specific, but there are many similar stories out there. Our current market condition has proven that millions of people around the world have failed to learn good spending and saving habits.

As of March 2012, the average credit card debt per household was $6,772
As of February 2012, the average household savings rate was 3.7%

In a nutshell, we save some and spend a lot! Since most people don't talk about money with anyone, including their spouse and children, we continue the cycle of under-saving and overspending.

So, how do we break the cycle and change the way we think about and manage our money? As a soon-to-be parent, I want to instill good financial habits and behaviors in my child. These are the tips I will share with him about money:

Save something from everything you earn. This is the "pay yourself first" mentality. I will teach my child how to save. If he does chores around the house for an allowance, I will require that he saves part of what he earns (e.g. Earn $10, save $2 of that and you have $8 to spend).
Create a budget and be accountable to it. I also plan to teach my son how to create a budget, manage it, and watch expenses, while still saving on the side. For those of you who have children in college, help them set up a budget (www.mint.com is a good place to start), and teach them the value of living within their means and not opening credit cards
Know your credit score and understand its impact on your future. I will explain to him what a credit score is and what impact it will have on his future.
"Practice what you preach." You can't teach your children how to be a smarter saver and spender if they see you spending frivolously. My family will continue to live within our means and set a good example for our children.

We can all learn from each other; we just have to share our ideas. In the comments section, please leave your best ideas for how to change the way we think about money and how you will teach future generations.

For more from Todd Greider, see:

Why You Should Care About Your Online Brand

S.O.S.: Simplified Online Strategy

Anatomy of a Successful Advisor