Teaching Children the Financial Facts of Life

Jeff Nelligan; Financial Advisor and Senior Vice President, Global Wealth Management Division of Morgan Stanley- Denver
Posted 2/14/13

As parents, we are usually the primary source of a financial education for our children. If we want our children to be happy, we need to teach them …

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Teaching Children the Financial Facts of Life


As parents, we are usually the primary source of a financial education for our children. If we want our children to be happy, we need to teach them how to manage the money they will earn, both as young people doing chores, and later, as adults with careers and incomes.  It is much harder for our children to create lives that help them achieve their goals and find their individual paths to success without a solid approach to managing finances.

To help children develop a responsible attitude about money, it might help to consider these points:

Start Early

The sooner you can start talking about money, the better.  As kids are learning the denominations of coins and how to add them together, parents can link those lessons to the practical use of the money beyond learning to count it.  Explain the meaning and purpose of employment, the importance of paying bills, and the idea of credit and how it can be useful or detrimental. Let your children practice what they have learned about earning, saving, spending, and giving money. 

Be a Role Model

Instead of viewing money and personal finance as a forbidden topic, discuss your own financial goals and plans. How you deal with money issues—from the monthly bills to planning the family vacation of a lifetime—are important and long-lasting lessons about money management and the value of money.  In addition, these conversations about family finances will lay the groundwork for future conversations with young adults about their personal finances.

Encourage Savings and Investments

One of the simplest ways to support a responsible attitude about money is to encourage children to save. This could include designating a portion of a child’s allowance to a savings account, or making gifts of cash directly to an account in their name. Take the time to explain basic investment types such as cash instruments, stocks, and bonds. Make investing interesting by engaging in conversations about companies that provide popular children’s products such as toys or clothing.  And be sure to explain the powerful concept of compound interest, so children can see in numbers the difference between starting to save early or leaving it until later. 

Develop a Sense of Financial Empowerment

Developing responsible spending habits means encouraging well-thought-out choices. Take children on window-shopping trips to compare prices and products and adopt the mind set that every trip to a store is an exercise leading to a potential purchase. But remember, too, that spending mistakes can teach important lessons.  Buying a game or movie might seem like a great idea at the time, but by making the mistake of spending money on something that can be borrowed from friends or the library, children can learn that momentary wants are not often a good long-term investment.

Give Unto Others

Involve children in your financial decisions regarding philanthropy. Contributions to a canned food drive or the creation of a holiday basket for a needy family can grow into a family-wide event. By helping children contribute time or money to a charitable cause, you can teach them about money’s far-reaching effects, while simultaneously providing a lesson in generosity and abundance, a powerful and proven precursor of personal happiness.

Jeff Nelligan is a Financial Advisor and Senior Vice President of Wealth Management for Morgan Stanley Smith Barney (MSSB) in Denver. If you’d like to learn more, please contact Jeff at (303) 572-4034 or toll free: (800) 477-3041 x4034. Email Jeff at jeff.nelligan@mssb.com or visit his website at http://www.fa.smithbarney.com/jeff_nelligan/.

The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.


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