As parents, we have many worries about our children and how their lives will be – and we naturally want to make things as easy for them as possible. Rhiannon D’Averc explores how parents can do this in a financial sense, with tips from experts in the wealth and finance sector.
In just the last twenty years alone, we’ve seen a lot of upheaval. Recession after recession, crashing and climbing currency exchange rates, the invention of cryptocurrencies, NFTs, austerity measures, Brexit, the cost of living crisis… and in the next twenty years, we’re sure to see many more events that leave us feeling anxious and overwhelmed.
Through all of this, it can be incredibly difficult to know whether you’re doing the right thing. Nowhere does this leave us feeling more helpless than with regards to our children. We want to give them the world – make sure their lives will always be comfortable. Particularly for those of us who have personally experienced hardship, it’s so important that we keep them from going through the same.
But when the future is uncertain, and even today to some extent, how can we achieve that? These tips will help you go some way towards financial peace – allowing you to focus on all your other worries (like whether your child will try drugs, get facial tattoos, or go sky-diving – you’re welcome!).
Make Money a Normal Conversation
All too often, we treat money as something that needs to be private and hush-hush. We Brits are not the only ones keeping our mouths shut; according to Mike Golosovker, a financial planner based in New Hampshire who specialises in working with parents, Americans are also terrible when it comes to talking about money. This leads to a lack of education, which is difficult even in the internet age.
“The issue isn’t that people know the question and need to find the expert to provide the answer. It’s that they don’t know what they don’t know,” he says. “They don’t even know that there are questions they should be asking, because they don’t have the framework for it.”
This lack of conversation can be a real problem according to LJ Walker Jr, a financial coach with KPI Financial Coaching: money worries are a leading cause of divorce. But if we talked more, we’d have a better grip on our household finances, which in turn would make it easier for us to plan for the future.
“Money has always been a conversation in our house,” says Elyse Stoner of Fresh Perspective Consulting – a mother of two now-adult children
“We’ve never shied away from it. I think for my husband and myself, our parenting style is very much about preparing them to be humans out in the world versus coddling and bubble wrapping. So, money and finances are very much a part of that conversation.”
How far should you go with it?
“You don’t need to show your kid your chequebook or your pay stub, but be open about the role that money plays in life, in freedom, in, hard work. To not talk about money, I think, is a huge mistake because it touches so many parts of our lives,” says Stoner.
When it comes to education, a formal learning environment isn’t the only – or even always the best – place to learn, as LJ Walker Jr explains. “Surround yourself with a circle of people who truly care about you,” he says. “And this is probably maybe five people who really care and you can trust. And then the other piece of it is be curious and paranoid at the same time.”
When it comes to the new movements and options in finance (investing in Bitcoin or buying NFTs to sell later come to mind), Walker Jr’s stance is that education is once again king. Should you invest? “It depends on how comfortable you are, but don’t be oblivious to it. That’s the same thing for people who don’t jump on the technology train. The world’s moving and you’re still living in the 1820s? No, you’re going to make your life a lot harder if you do that. I’m not saying you have to adopt everything, but you need to be aware, right?”
Mike Golosovker also points out that investing in fads, or not doing so, comes down to your personal approach rather than a blanket piece of advice. It’s the same thing for whether you choose to try to avoid risking a total loss of your investment, or try to combat the risks inherent to inflation.
“That is just the classic risk versus return question,” he says. “Very broadly, generally speaking, the higher your desired return, probably the higher risk. So, are there ways to grow money where you are avoiding risk? Absolutely. And then there’s ways to overcome inflation, but that may or may not have the riskless nature of the other ones. You have to think about what is the bigger concern for you.”
… And Educate Your Kids
According to Walker Jr, it’s important that we stop thinking about money as an end goal and instead see it for what it is: a tool. It can be used to build a good citizen of the world, rather than just being something to grow for the sake of itself.
“How do you grow this little bundle of joy into a productive citizen? So they can think for themselves, they can protect themselves, they can have a good life?” he asks. “You can’t control what happens in the world. You can make an impact role modelling what to do and what not to do.”
Is there a time you should start educating your kids on money? According to Golosovker, that time is probably right now.
“Literally as soon as possible,” he asserts. “There is no age. If you’re at a stage where you can explain ideas, even slightly abstract ones, then you’re at an age where you can at least start learning some of the foundation.”
“Talk to your kids as soon as they’re old enough to talk or five, six, seven, have that conversation with your kid,” agrees Walker Jr. “Don’t be ashamed.”
Walker Jr also has a great method for helping kids understand household finances. He explains to his children what expenses go out, what amount of money is coming in – and then asks them what he thinks they should do with the extra left over.
“You say you want toys,” he’ll tell them. “Okay. Great. This is how much that costs. We have to go and get groceries at the store. This is how much it costs. Which one do you want? Which one do you think I should buy? Because we can’t have both at the same time.”
Does the message get through? Yes, he says – and his children will often settle for getting a little Pokémon pack along with the groceries.
For Elyse Stoner, the education began at an early age – explaining to her children as they passed homeless people begging on the street that “I’m choosing not to give this person money because I give to an organization that helps more people.”
This education continued as her children grew older, with a visit to Disneyland serving as a huge learning moment for them – a moment which, Stoner says, defined both of their approaches to money.
“When we went, we said you each get $25, and you can spend it on whatever you want. Our older son, I’ll never forget. We went on the Toy Story ride. And in Disney World in Florida, every ride emptied you immediately into a gift shop.
“So we go into the gift shop and he sees this bucket, you know, 12 inches high of green army men. And he has to have it.”
He buys it.
“We went to the next ride. We get dumped into the gift shop and there’s something else he wants to buy. I’m like, do you have enough money? He said, no. I think it was just a real valuable lesson on making decisions and having that money and allowing him to understand that ramification.
“Fast forward as a side note, to a couple nights later, we were at the candy store on the boardwalk and he really wanted the Goofy Pez. He had spent all his money, but his little brother did not.
“So apparently, when Mom and Dad weren’t looking, there was a bit of a brotherly conversation!”
One son was a spender and one was a saver – but soon got ‘persuaded’ to lend money to his brother, leaving him with nothing left anyway! As Stoner explained, being able to see the financial models her children had adopted early on meant there was room for course correction – although as a parent, it remains one of her worries to this day.
Don’t Be an Obstacle
You may be doing everything in your power to help your kids in the future – but if you don’t take care of things that matter the most, you might actually be creating obstacles for your children.
One potential obstacle is the sudden death of one or both parents, which can really cause financial turbulence – especially if there are funeral costs to pay with no insurance, a terrible start to a future without financial support.
“It’s one thing to reach adulthood and not have assistance from your folks – to not have them help you pay for college or not have help getting a house or starting a business or whatever it is that you’re going to do,” Golosovker points out. “It’s an entirely different thing to have financial hardship as a kid.”
Unfortunately, if you don’t have life insurance in place, that can be exactly what you’re setting your children up for.
This is especially a problem when parents don’t have enough money to both save for retirement and create a savings fund for their children, which creates a “tension” that many parents solve by focusing on their kids. They build college funds to save their children from student loan debt, rather than thinking long-term to their own futures.
“Parents, when they sacrifice themselves and their own savings, that is actually a real problem,” Golosovker warns. “They don’t want to burden their kids, but you are reaching the period in your life where your earning capacity is going to drop significantly, right? And it’s not as easy to just earn your way out of the problem – which is not necessarily easy for kids to do either, but there’s some hope of it.
“And if so, if the goal is to make sure that the kids have the fewest obstacles? Then don’t make yourself one of those obstacles later on by not having prepared for your own retirement and finances.”
One thing you may be doing unconsciously is showing your kids exactly the wrong things to do – even if you’re saying all the right words. “Put your money where your mouth is,” Walker Jr says. “If you’re going to tell your kid to save [their] money. Guess what, Mom? Are you doing it? Don’t be a hypocrite! So do it. It may be uncomfortable. It may be hard, but do it.”
Make Saving a Habit
One thing all three experts agree on is this: when saving is an automatic habit, your financial future – and your kids’ – will be a lot better off.
“It was a fixed expense as far as we’re concerned,” says Stoner. “It was on that list of, you know, we have to pay the mortgage and we have to pay the electric bill and we need to pay the cable bill. And we did put money in in that monthly amount.
“When both of our children were born, we opened 529s for them, which is a college savings fund [in the US]. And we worked with our family members for their birthday or for the holidays. We were very upfront about it. It wasn’t a handout, but it takes a village – and at some point, most of our children at any age don’t need any more stuff.”
While the amount you’re able to invest monthly may fluctuate, setting up a direct debit to a savings account – the same way you might with a pension fund if you’re self-employed – can take a weight off your mind, and help grow your kids’ futures without you even having to think about it.
Do you have worries about finance? Are there any tips you need?
Find Rhiannon on Twitter @rhiannondaverc and comment or DM her your questions to see them answered in future issues!
Article from Issue 87- The Solar Issue. See more