A common concern among the high-net-worth families who we work with is how to raise children with an understanding of the value of money. In some families, these lessons are taught out of necessity, but what happens when there are fewer imposed limitations? How can parents communicate the difference between being able to afford something and whether or not the item is worth the money?
In our extensive experience working with families, we have found that much success can be attributed to children learning and developing two life skills: delayed gratification and autonomy. Teaching children to strengthen their willpower and giving them age-appropriate autonomy can provide a foundation that allows them to grow into responsible, successful adults.
Both delayed gratification and autonomy can be nurtured over time and build on each other throughout each stage of development. While it is important to highlight key principles for instilling financial savvy, we believe it is critical to offer concrete advice to parents as they navigate the potential pitfalls of raising financially responsible children – a task that can become more complicated with greater affluence.
This article offers a guide on how to build these skills at various stages of development: preschool, elementary school, middle school and high school.1 Our practical advice is broken up into three categories that we believe are applicable at each developmental stage:
- Helping children differentiate needs from wants
- Teaching children to spend wisely
- Coaching children on the importance of giving back
While preschool-aged children do not have much impulse control, it is possible to teach them to get better at exerting willpower over time. The games described in this article can help lay the groundwork for developing delayed gratification.
At this stage of development, children are very involved in testing their autonomy and what they can do on their own. It is important – although sometimes frustrating – to let children explore the limits of their abilities while supporting them. When using any of the following strategies, you can offer your child some (reasonable) choices.
At this stage, children are often fascinated by money. This is a great opportunity to discuss what a bank account is and to further explore the value of money.
Your child may be less interested in testing the limits (autonomy), but he is developing a sense of pride in his accomplishments and abilities during this stage of development. This may be a good time to introduce more structured chores.
There is a lot of debate about paying for chores (separate from allowance). One school of thought is that parents should not pay for all chores. There are some tasks that everyone in the family must do because that is part of being a family. At this age, children actually enjoy chores, perhaps because they are showing you – and themselves – that they can do something on their own for the good of the family. You can think about offering to pay for chores above and beyond the “normal” family chores. Some parents find it helpful to think in terms of “would I pay someone else to do this for me?”
This is another stage where autonomy factors heavily. Children in this stage are often exploring their independence and moving away from childhood. It is a good time to encourage your child’s entrepreneurial spirit – listen to his ideas and let him follow through (within reason).
Children will start to become aware that your family has different resources than their friends’ families. In addition, they will begin to understand math concepts better (compound interest) and can be more empathetic. Therefore, your conversations around saving and giving back can become more sophisticated.
High school is a time where your child will continue to create a strong sense of personal identity, but also will begin preparing for the future in a way she has not before. Although not yet adults, high school students may begin to see adulthood more clearly. Soon they will be able to drive, to vote and eventually go off to college.
Many children get their first paid job during this time. Perhaps ask that your child begin putting some of her own savings away for college. Research indicates that children who contribute their own money to college, whether they have to or not, are more engaged students and have higher GPAs than those who do not.
It is important to give your child the freedom to make bigger decisions. He will make mistakes – let him, and help him learn from it.
The value of money is a learned concept; no one is born with it. Building the skills of delayed gratification and autonomy is a lifelong process, and you can begin using these tools with your children at any stage. Consciously engaging in these conversations can help children grow into responsible, successful adults who understand the value of a dollar.
We know that getting started can be difficult. Many of our clients have found our customized family wealth education programs to be helpful for increasing financial know-how and confidence. Research shows that deliberately preparing children to steward wealth is the key to success, and financial education is the foundation.
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1 Please see our spring 2018 issue for advice at college age and beyond.