As a father of five, Rob Hon, Managing Director – Investment Officer with Wells Fargo Advisors, has more experience than most when it comes to teaching kids about money. Two crucial lessons that he’s learned from that experience: Start early, and know that there isn’t a one-size-fits-all approach.
“What I’m teaching my 9-year-old twins right now is age-appropriate, but it’s also tailored to how they’re wired,” he says. “My boy is a saver who loves to earn a buck. My daughter? Not so much. But one thing we’ve taught all our kids is that money doesn’t bring happiness. It takes a lot of work and time to learn how to manage money as well as the expectations that come with it.”
Here, Hon and two colleagues at Wells Fargo Advisors share five tips that can help parents set the next generation on a path toward financial success.
1. Emphasize saving—and giving.
Elizabeth Mannen, Managing Director – Investment Officer, used the popular three-envelope system when her kids were young. The envelopes (you can also use jars or piggy banks) each have a label: spend, save, and serve.
“All the money they earned or received was divided into those three envelopes,” Mannen says. Learning how to spend and save wisely are important, but the value of helping others also plays an important role in money management. “Teaching kids to set aside money to help someone else, whether you earn a lot or a little, helps them be more thankful for what they have.”
2. Be transparent.
One of the best ways to pass on financial values is to give your kids insight into the reasoning behind your decisions and your budget. “Bring your kids into the conversation, especially as they get older,” Hon says. “They don’t need to know all of the details, but they should understand that things cost money, and you have to budget for what you want and save for the future.”
Mannen agrees. “Talk about how your goals impact your budget,” she says. “The lesson is to never trade what you want most for what you want at the moment. Kids need to see how that governs all of your decisions.”
3. Practice what you preach.
Rick Salus, Managing Director – Investment Officer, says he made a commitment early on to demonstrate sound financial principles every day. “We talked a lot about how there’s a difference between what you have and what you’re actually worth,” Salus says. “You have to control your debt, which is why I’ve always bought certified used cars rather than new, for example. Now my three adult kids do the same.”
4. Provide tools to teach about budgeting.
Consider helping teens learn about budgeting by modeling that behavior at home and possibly encouraging them to use one of the many resources available, such as budget tracking apps to make it more engaging. “High school and college students need to know where their money goes each month,” Mannen says.
Among other options to consider are secured credit cards, which can help your child build credit by letting them make cash security deposits. Their security deposit is equal to their credit line—for example, if they deposit $300, their credit line is $300. This makes it a lot harder to spend more than they can truly afford. “That said, it’s important to let kids make little money mistakes so they can learn how to avoid making big money mistakes as adults,” she says.
5. Add investing to the mix.
“When our kids started working as teenagers, we opened Roth IRAs for them,” Salus says. “We matched every dollar they contributed to their accounts. It gave them an incentive to save for their futures.” Also consider giving your kids some money to invest in stocks that they choose. “They’re more likely to continue to invest when they start seeing real results,” he says.