What can be done now that will teach your child how to be capable in navigating important financial decisions? Morgan Lemaitre, CFP® Co-Founder of Park City Family Office has 3 lessons that will foster accountability and financial literacy.
Before any training begins, give your child the gift of approachability under any circumstance. “It is important to believe in and practice transparency and communication,” says Lemaitre “Do not flinch, shy away from, or avoid hard conversations. Be truthful and be a resource in which your children can approach you. Maintain composure, and truly listen fully before you react.” A parent willing to engage in hard conversations with a listening ear is foundational for a relationship of trust to develop. Any positive life lesson cannot be taught without trust.
Be honest with what you are planning on financially providing and not providing your child. Do this right now. Let your children know what to expect financially, what not to expect, and what is expected of them. Do not sweep conversations about money under the table. “Conflicts often arise because families do not have transparency, or plans.” Lemaitre states. Recognize that children are learning by what we say and what we don’t say, what we do and what we don’t do. Share aloud what you are saving your money for. Model financial decisions you are making and create a family budget together.
“Children learn that budgets help empower
and create a sense of confidence and
peace within a family.”
Children learn that budgets help empower and create a sense of confidence and peace within a family.
How or if to fund further education is a much-debated subject in homes between parents and can be a huge point of misaligned expectations. Decide now, if you will be providing your child with a fully parent funded college or trade school education. If so, what expectations will you have? Will you require your child to work and pay for a portion themselves, or is a specific GPA considered their work? If you are paying, what percentage will that be? If you are not funding higher education, your child deserves to know. Lemaitre shares a popular idea she uses with her clients, “Have your child take out a student loan with a low interest rate right after high school graduation.
Upon graduation from college with an agreed upon GPA, the parent can pay out the student’s loan in full, or the agreed upon percentage. “I’ve found the student might be surprised at this idea at first, but in the end, they treat their education with respect by showing up to classes and being a good steward of their financial resources because of that ownership. They have their skin in the game, with a prize at the end”. Just remember as a parent, your responsibility isn’t to fund all expenses, but to ensure expectations are managed and understood by all parties so that everyone can make informed decisions.
“Raising a financially literate child requires
intentionality, communication, planning,
and experience making decisions.”
Teach your child to learn to spend only what they have vs. what they think they need to have. Give your child the freedom to make their own financial decisions. Earning an allowance helps teach this important lesson while experiencing ownership of their choices. “You want that toy? Let’s find out how much it costs. If you don’t have enough money now how much do you want to save each week until you can afford it? It’s your choice.” Teaching isn’t telling, and it isn’t even showing. Teaching is learning through experience. An allowance should be earned for chores that are above and beyond what your child would normally be required to do as a contributing member of your family. Making a bed each day, teeth brushing, and setting the table might be typical daily requirements for your child. Cleaning out the family car, raking leaves, and bringing chopped wood inside might be allowance type chores. By going above and beyond with allowance earning chores the entitlement trap can be avoided. Money is to be earned, not given is an authentic life lesson.
Teach your child by experience to become familiar and knowledgeable about debit cards, interest rates, overdraft fees and make a rule to place 50% into savings with their earned allowance. “I tell my children that when they get older, if they put about 30% of their income into savings, they will never have a financial worry in their lives” Lemaitre states. Imagine that financial freedom! If your teen wants a fast car, sit down and show the cost of that fast care including insurance and gasoline costs. Does your child have the money? Perhaps public transportation or borrowing the family car might suddenly seem more appealing. The decision is your child’s to make. This is where we can, “embrace the teachable moments by recognizing that your children are learning about themselves and about money. I once took my 10-year-old son with me to re-finance a house. I wanted him to see the process and understand the wisdom behind a re-finance.” Lemaitre continues, “We want our children to be good stewards of what they have so they don’t grow up to be an adult facing important financial decisions for the very first time” unprepared.
As a parent it’s important to remember that while your children might get to enjoy all the things you’ve worked hard for while they live under their roof (vacations, dinners out, cleaning help), once they are set out into the world, they are not entitled to this lifestyle if they can’t support it through their work. They might still be able to enjoy it when they come home for visits and can be proud of what their parents have built… but, it’s exactly that, their parents.
Accountability is using the tools you have been given and shown throughout your life and leveraging those to earn your own way. Raising a financially literate child requires intentionality, communication, planning, and experience making decisions. Isn’t your child’s financial future worth it?
About Morgan Lemaitre
Morgan Lemaitre is the Managing Director of Park City Family Office. Morgan specializes in working with Wealth Creators as they navigate exits and liquidity events and is passionate about helping ensure the next generation stays engaged, accountable, and living a purposeful life.