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Financial Planning for Kids


Other questions to consider when teaching kids about money and why it’s important to outline your philosophies on money as part of those conversations

June 21, 2023

Imagine four-year-old you. You’re placed in a private room, seated at a table, and a jumbo marshmallow is placed in front of you. You’re told that you’re going to be left alone for 15 minutes. If the marshmallow is still there at the end of that time, you’ll be rewarded with a second marshmallow. If you eat it, you will not get a second marshmallow.

Of course, many of you recognize this as the now iconic Marshmallow Experiment conducted by Stanford and published in 1972. If you’ve never watched the videos of these kids, they’re quite entertaining. Do you have an idea of what you would have done in this scenario? What would your kids do?

The answer to this question is more important than you may think. What most people don’t know about the Marshmallow Experiment is that the researchers followed those kids for more than 40 years. The kids who were able to delay gratification as four-year old’s, on average, ended up being more successful in a variety of different metrics including test scores, diet, drug use, responses to stress, social skills and more.

So, there you have it. Train your children to resist temptation for 15 minutes, and they’re destined to be responsible, well-adjusted, and on their way to future CEO, right? Okay, maybe that’s a slight oversimplification, but there’s certainly a lesson to be applied as we think about kids and what we’re teaching them about money.

In our financial planning conversations with clients who have children, almost everyone intuitively understands the importance of teaching valuable financial lessons to their kids from an early age. We hear this through sentiments like:

  • I want my child to know the value of a dollar, and the work it takes to earn it
  • I want my children to be grateful, not entitled
  • I want my children to be financially literate
  • I want my children to be able to successfully budget
  • I want my children to be conscious about how they spend, save, give, and invest their resources

And yet, so many traditional financial planning conversations still start and end with how much parents need to save in a 529 or a UTMA to send their kids off to college. This falls short on so many fronts. It also leaves parents wondering what they can do to guide their children toward financial success and whether they’re qualified to do so.

The good news is there are a lot of great resources out there on “what to do” and “how to do it”. You may have tuned into the Private Client Group webinar we hosted in February where Robin Taub, author of “The Wisest Investment” shared a number of great lessons. Search “how to raise a financially responsible child” and you’ll see a list of ideas like:

  • Communicate about money starting at an early age
  • Be open about family finances
  • Involve kids in shopping decisions
  • Involve your kids in philanthropic decisions
  • Educate and demonstrate

All of these are wonderful, practical ideas, and we highly encourage adopting many of them into your home. However, we’d argue the best starting point is not with the “what” or the “how” but the “why”.

Like we’ve written before, we believe the best financial planning results come with values at the core and planning for your kids’ financial success should be no different. Your values will become your philosophy guiding the “how” and the “what”, and ideally, we recommend creating that philosophy before your children turn five, which is roughly the age they can start grasping basic money concepts. The next best time is now. So, if you’re looking to build a foundation to help guide you as you teach your children about financial planning concepts, here are three immediate conversations you can have to start shaping your philosophy around how you will teach your kids about money.

  1. Document your values

    In our firm, we lead all new clients through our values exercise which guides them to defining their top 5 household values. Most recently, one young family chose Family, Health, Giving, Independence, and Meaningful Activity. As we discussed teaching their kids how to be financially responsible, we encouraged using these values as a framework for finding teachable moments around how to help them build the right habits. They decided to have their 6- and 8-year-old involved in family charitable conversations, and they began discussing the value of a dollar and how they decide as a family what qualifies as a meaningful activity that’s worth spending money on. It doesn’t need to be complicated. You’re ahead of the game if you can clearly articulate your core values and you regularly and openly discuss money at age-appropriate levels. Be aware; the moment you put your values out in the open as a family, adults need to be cognizant of how they’re making financial decisions. After all, kids will notice if we’re saying one thing and doing another.

  2. Discuss your upbringing with money. How was it similar to or different from your spouse’s? How is it similar to or different from your own children’s current upbringing?

    Unpacking this question can be incredibly insightful. On the topic of saving for college, it almost always comes up naturally. One spouse will share how they want to fund it all because that’s what her/his parents did and it gave her/him the head start needed to pursue the career of their choice without being burdened by student loans. The other will share how she/he had to pay for all their college which made her/him more intentional with which university they chose, the degree he/she pursued, and ultimately helped him/her more clearly understand the value of a dollar and what it meant to work hard. Sound familiar?

    First, it’s important to reflect on our money scripts. Neither of these scenarios are right, wrong, good, or bad. They are simply the stories we tell ourselves and believe about money based on how we grew up. More than likely our money scripts will significantly impact how we teach our kids about money, so it’s important to be aware of them.

    The next step is identifying if our money scripts came from intentional parenting, or if it was just the default lesson you learned based on your circumstances. What if your current circumstances are significantly different? Is it prudent to go on autopilot and handle financial decisions the same way your parents did? For example, if you had to pay for college in full, but now you make two to three times more money than your parents did, your children likely won’t receive the same financial aid as you did. Would you be teaching your kids the same lesson in this scenario, or could you perhaps cause more challenges and resentment than you intended?

    Discussing our upbringing can help us see our natural biases and create a united path forward that blends lessons from our past with intentional decisions that meet the needs of your family, align with your values, and are relevant for your current socioeconomic situation.

  3. Get on the same page about upcoming decisions—what support will you provide? And what will kids have to work for?

    Let’s list some decisions you’ll be faced with:
    • Allowance or no allowance?
    • Which chores are normal responsibilities of the child and which ones are worth money?
    • Are your children expected to work? At what age? How do school activities impact this decision?
    • When do your kids have to start paying for things? What things will you require them to save for and spend their own money on?
    • Will you buy them their first car? How will you finance or structure this?
    • How much are you paying for college? Will they take out student loans?
    • Do you want to have money set aside for something else? A down payment on a first home, wedding funds, capital to start a business?
    Fortunately, and unfortunately, there aren’t right or wrong answers to these questions. However, the sooner you can have your philosophies on these matters ironed out, the better. This way you’ll have expectations set with your kids well in advance and you can help them understand the why behind your decisions and philosophies.

As we move from the “why” to the “how” and the “what”, each child will require a unique approach, but every family can start with these basic conversations, craft philosophies in these core areas, and create a strong foundation for future success. At Voyage, these conversations are integral to our planning process. It’s not enough for us to make sure you have enough saved for your kids. We want to see kids become young adults who confidently steward the resources and opportunities their parents worked so hard for them to have.

If these are topics that have been on your mind, or you’ve noticed a lack of restraint around marshmallows, we’d love to find time to connect and co-create a “why” that you’re proud of as parents and that will allow your kids to thrive in years to come. Reach out to us today to get started.

*Coming Soon* Be on the lookout for future Insights articles on the “what” and “how” of this equation. We’ll share our thoughts on implementable strategies you can use with your kids from ages 4-22 that we’ve seen lead to successful outcomes.

Interested in other articles related to industry concepts and hot topics? Read more here.