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How to help clients teach children about money.

No doubt you've heard clients express that they want their children to develop a strong work ethic, acquire "money" knowledge and lead productive, meaningful lives. However, since many of these clients are so much better off financially than their parents, they find it difficult in these affluent times to instill solid financial values in their children.

Financial literacy studies show that about half of our young people don't understand how to save and invest for retirement, how to handle credit cards, how government spending affects them, or the difference between inflation and recession. The JumpStart Coalition for Personal Financial Literacy (see below) determined that the average high school graduate lacks basic skills for managing personal financial affairs, including balancing a checkbook. In addition, most young people simply have no insight into the basic survival principles of earning, spending, saving and borrowing. Financial literacy is a tremendous problem in our country--and not just among the uneducated or poor.

Teaching good money habits is well worth the effort because children who learn basic financial lessons early reap the benefits for a lifetime. However, some parents don't teach their children about money for one of three reasons:

1. They think they shouldn't talk about money with children.

2. They think they don't have enough money.

3. They don't have (or want to take) the time.

Encourage clients to take time to teach their children about money--regardless of income--and start when they are young! Even young children can learn how to use money and resolve financial conflicts.

Helping clients address these issues could be part of your practice--whether it is putting on programs for teenagers to learn about money matters or helping young adults understand their family's finances or wealth transfer plans. A financial planner also can be a problem solver and educator.

What Parents Can Teach

Here are topics you can suggest to clients wanting to develop "financially literate" children:

Earnings: When a child gets a job outside the home, discuss the responsibility, financial risks, expectation about using earnings and level of support (e.g., driving the child on the paper route when it rains). Help the child set up a record book to track earnings and expenses, and explain the break-even point. Renegotiate the level of support the family will provide as the child begins earning more money outside the home, and gradually withdraw support as he or she moves toward financial self-sufficiency.

Spending: Include children in family financial decisions and discussions appropriate for their age. This helps them feel valued and tells them that money is not a taboo subject. Open a checking account and help them balance it. Require children to contribute to religious or other groups of their choice, and have them figure out expenses for their projects. Go window-shopping together, and let children know that you can't always afford to buy everything you want.


Savings: Help children set short-term savings goals, and show them how long it will take to achieve a particular amount. It is hard for 10-year-olds to appreciate the interest their $100 earns this month in the college fund when they can't get a special toy. Encourage the saving habit by matching the annual amount saved. Explain the difference between planned saving (short term) for a specific want or need, and regular saving (long term) for unknown items or emergencies.

Borrowing: Draw up a loan contract with your child, and either charge interest or set up a grace period when no interest is charged. Use a loan payment book and explain how it works. Keep the amount realistic for their financial means, and never loan children more than they can repay and then forgive the loan. The goal is teaching them to live within their means.

Over the years, financial advisors experimented with helping clients teach their children about money and have learned to start the process early--because nothing is achieved overnight.

Additional Resources Jump$tart Coalition maintains a searchable database of personal finance educational materials. National Council on Economic Education promotes economic literacy among students and teachers. For teenagers who want to learn more about the stock market. Teaches children to become savvy consumers. Online games allow children to show off money skills.

Phyllis Bernstein, CPA, is president of Phyllis Bernstein Consulting, Inc. in New York City. Contact her at
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Author:Bernstein, Phyllis
Publication:The National Public Accountant
Geographic Code:1USA
Date:Dec 1, 2006
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