Do you have any idea how to talk about money with family? Some people do not like to discuss their finances. This is one of the things that you should never discuss with anyone else – at the very least, for security purposes. But does that include your family? Should you keep your financial situation from them?
It actually depends.
According to one article, 9 out of 10 wealthy parents do not reveal to their kids what they will inherit. Some financial advisors believe that this is a mistake. Parents should discuss their finances to avoid disputes in the future. But based on the article, it is more important to talk about legacy instead of focusing on the amount.
If you think about it, it actually makes sense. It does make sense to discuss legacy instead of the actual amount that you will be giving your kids. However, it is probably applicable to the inheritance that will be passed on to them. But when it comes to how you manage your finances at home, that is another story. You might want to be more open with your finances – especially if you are trying to make ends meet.
Of course, not everyone is comfortable when it comes to talking about money with the family – especially their kids. But if you want to have financially successful kids, you need to make sure that they have the right traits that will help them reach it. While what you show them is more important than what you tell them, you need start by explaining the basic financial concepts to them. And the best way to talk about money is to use your current finances as an example.
Tips for when you have to talk about money with the family
So how do you go about starting this talk about money with the whole family? Here are a couple of tips that you can use to make this conversation fruitful and successful.
Parents should take the lead
As the parent, you need to take the lead. Unfortunately, not all parents feel confident about doing this. Jayne Pearl, the author of several financial parenting books, gave two reasons why parents have a hard time taking the lead when it comes to financial lessons. The first reason is they do not feel like they are good role models. The second reason is they do not feel like they know a lot about their finances in the first place.
Obviously, these are two valid reasons to keep your mouth shut when it comes to talking about money with your kids. But here is the thing – if not for you, who will teach them about personal finances?
While there are some schools who have this in their curriculum, nothing beats hands on experience. If you do not know anything about money, well it is time for you to learn. It is a must for you to manage your finances wisely. And if you make mistakes, that is okay. What is important is that you show your kids how you will rise from that wrong decision. In fact, that is one lesson that might be useful someday. You need to teach your kids how to recover from a wrong decision – because no matter how hard you try, they are bound to make mistakes too.
Cover the important details
Before you start your talk about money, you have to be prepared with what you will discuss with your kids. This is not something that you will be doing on a daily basis. And you need to be prepared in case you are faced with kids who have no interest in what you have to say – or have them asking all sorts of questions. There are many money concepts that deserve to be discussed and you need to make the conversation flow in such a way that your kids will appreciate and understand.
So what should you be discussing. Start with the basic concepts like saving and spending. Tell them the importance of saving and how they should choose to spend whatever amount they spent. When you feel like they already grasp the concept, you can go to budgeting. These lessons cannot be taught in one sitting. In fact, you need to make sure you teach them by example. Talk about money only to explain the concept. Then, you need to show them how it is done.
There is no need to disclose everything
Talking about your finances with your kids is important but you do not have to disclose everything to them. You can choose the specific parts of your finances to disclose – just what you think they need to learn the lesson. If you made investments under their name, it might be wise to keep that from them. Sometimes, when people know that they can expect to get money in the future, they will lose the will to work hard to earn their own. They will be complacent and you do not want that to happen. You need to make sure they are aware that you are financially stable, but that it is your money – not theirs. If they want to be financially successful, they need to do it themselves. Of course, you will be there to help them – but they have to do the legwork on their own.
Why your kids should be aware of your financial position
Some parents do not talk to kids about money because they think they are too young to understand. This is a popular misconception. According to experts, your kids has the ability to understand basic money concepts by the age of 3. When they reach the age of 7, they should have basic financial habits already. This is why you should not let their age keep you from teaching them about financial management. You do not have to give them a formal lesson. You just have to talk about money and show them how you apply it at home and they should get the idea. Doing this is beneficial to the kids because of several reasons.
It will teach them about finances
While this is something that they can learn in school, the first lessons are usually what they get at home. Children learn by observing what happens around them. Some people feel like talking about money is a taboo. It should not be that way. They should not grow up feeling uncomfortable or even intimidated by the concept of money. When you discuss money with your kids regularly, they will learn that it is a natural part of life and should not be taken lightly. When they get older, they will look back on your money talks and hopefully apply what they remember.
It will make them aware of their own expenses
When you talk about money with your kids, you will most likely be discussing your expenses. This will make them aware of their own expenses. This is a great way for you to instill the right spending habits especially when they start getting their allowance. Not only that, you need to encourage them to be open about how they use their money. You want them to be independent enough to make their own choices, but you should also be ready to correct them whenever it is necessary.
It will expose them to the realities of money
As you regularly discuss money concepts to your kids, it will give them an idea about how it is applied in real life. This is especially true if you involve them with your budgeting efforts. This will expose them to the realities of money and its practical applications. They will realize that every decision that they have about money has a consequence – whether it is a positive or negative one. When you talk about money with them, you can help them be mindful of their financial decisions so it will always have a positive effect. When they develop the right mindset and expectations about money, it will help them form the basic financial skills that will lead them towards a successful financial future.