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How to Discuss Financial Investments with your Children

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Updated April 28, 2022

Christine Schmidt, CFP® Managing Director, Family Office

Parents often ask me when they should begin discussing money and finances with their children. My first thought is early and often.

My first lessons around money came from my mother telling me to put the money I earned into the “money jar.” As young farm kids, my mother gave each of us a jelly jar with our name on it. Any money earned from babysitting, bean walking, bailing straw, or any other job was to be placed in the jar. Then every so often my mother took it to the bank and it was deposited in our savings account. It was satisfying to check our balances and see how much our money grew over time. We all had jobs as kids and while I did not realize it at the time, these were lessons in finance that I would carry with me forever.

I share this because many of the money skills we have are from the experiences we had with money as children and even today studies have shown that our parents are the greatest influencers of our money habits.

Start Small

It is important to understand that having even basic financial discussions (paying the bills, making a purchase) in the presence of children is beginning the money talk. The next step involves more direct conversations and questions and those can start as soon as children are old enough to count or ask how much something costs.

For many of us, the first lessons around money are often memories with family. When asked, most people can recall the first thing they saved for and purchased and how it made them feel, or when they purchased something very specific for someone else using their own money. From those first experiences we build our money habits and most times can recall a lesson learned from the experience.

When I was in grade school my older brother decided to grow popcorn for a Future Farmers of America (FFA) project and planted a few acres. My initial thought was this would be great because everyone loves popcorn, but as it grew I realized the work that was to come. It became a fall and winter project for the entire family. We harvested it by hand as “we” wanted to get the best yield for my brother’s project, as I was told. The money earned was divided among all of us and placed in our money jars. Little did I know this was profit sharing and we would continue to raise popcorn and go through this same ritual for several more years.

Any parent should ask themselves the following:

  • What are the values you have around money and how have you demonstrated or shared those with your family?
  • Have you talked about a need versus a want and how to determine each?
  • Have your children had the opportunity to earn their own money?

Understand Tendencies

The concern a client has around their children’s financial well-being and in some cases their spouse after they are deceased or if they become incapacitated also needs to be addressed. The first step is understanding the concern. Have they previously demonstrated poor decision making and has the parent or spouse had to bail them out? How did those conversations go?

I will ask clients to share their concerns and tell me what money habits the children are displaying. Are there addiction issues or other influences impacting their judgment? Do they have a spender or a saver? We all know and can likely look at our own families and identify who falls into each category. I look at my own children who are 5, 11 and 13 and can tell already that I have two savers and a spender.

It is also important to identify that in ourselves. I am a saver. While those labels are tendencies, they demonstrate a relationship with money and each individual can be given skills to develop healthy money habits. Too much of either is not good; from the person who never spends a dime to the point that their home is beyond repair to the person who spends every dollar before it is earned—both have an unhealthy relationship with money. As parents, you have to be on the same page with your money discussion, just as you are when teaching your children other life lessons.

Build a Budget

When working with a family or individual we can explain a basic budget and build one for a month based on the spending habits of the individual. One exercise I ask my clients to do and have done with their children is to take a current bank statement and create a simple cash flow to obtain an understanding of their view of money as well as their spending habits and determine an appropriate budget. This schedule is for older kids or adults and begins by discussing what they did in the month with their money. While the categories may change, the exercise is the same and begins a dialog on their view of money.

This same exercise can be done with younger children who receive an allowance. With children it might be more of a physical counting of the money into separate jars as the money is received, to allocate the dollars between saving, spending and charity. The idea is to encourage a discussion about what they earned, what they will spend or share, and the amounts in each jar.

The most important part of the discussion is the “why.” For some adults it might be needs versus wants and for children it might be that their parents told them to. The why is important because our view of money is emotional and the way we all deal with money is based on how it was demonstrated to us in personal experiences or life lessons. Once we understand a person’s relationship to money we can better have the money talk and determine what steps are needed to help the child or spouse deal with their future role.

Our loved ones do not have to be math geniuses or love the stock market to have good money habits and be good stewards of their finances. In most cases, they just need to know the right questions to ask and have someone with answers to help them make good decisions. It is never too early to begin the money talk. Sharing your family values and giving children the opportunity to test their skills at an early age helps them gain confidence and experience.

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Christine Schmidt, CFP® Managing Director, Family Office