Parent Financial Socialization

Parent Financial Socialization

Our financial planner, Melissa Visbal, recently attended a webinar presented by the Financial Therapy Association on parent financial socialization. We’ve included a recap for any parents out there trying to figure out how to instill good financial habits in their children.

Who is the #1 source of financial learning for children?

Parents. Other sources include school, work, peers, and media. Children as young as three are capable of learning basic things about money and forming basic financial habits. Start as early as possible and don’t put it off until they are a teenager or adult.

What information should be taught around finances?

• To work hard
• To budget
• To decide priorities and act intentionally
• To make and meet financial goals
• To save and invest
• To avoid debt
• To be frugal
• To be generous and giving

How should the information be taught?

Three main methods: Modeling, Discussion, and Experiential Learning

1. Modeling

• Children learn through observation.
• Parents should set the example.
• Be careful hiding things because then they won’t learn from example.

2. Discussion

• Parents should be open.
• Share good and bad experiences.
• Plan sit-down lessons and conversations.
• Teach on the fly as well.
• Involve kids in financial decisions such as sharing the family budget and reviewing the budget. This can teach them how to prioritize.
• Encourage questions. Parents need to be approachable when it comes to money.

Common Worries & Rebuttals:

Worry #1: Appearing incompetent. Having honest discussions can help you find answers together and can be treated as an opportunity for both of you to learn and bond.

Worry #2: Kids will share the information. Decide when it is appropriate to share this information and ask them not to share. Trust them. What’s the worst that can happen?

Worry #3: Kids may become stressed. Make sure they know it is not a burden on their shoulders. The struggles are for you to work out. But they can learn from your struggles, and they might be able to help too (such as being more understanding when you say “no” to a purchase).

Example: Use Monopoly Money to discuss household income and expenses. This can also help you explain to children why you might have to say no to things once they see how much money is leftover after meeting the family’s living expenses.

3. Experiential Learning

• We learn by doing! Ideally doing it repeatedly until it becomes a habit.
• When children are actively involved in family finances and can practice what they’ve been taught, they will be better able to internalize knowledge, attitudes, and behaviors.

Mistakes are part of learning:

• 5-year-olds make $5 mistakes
• 10-year-olds make $50 mistakes
• 15-year-olds make $500 mistakes
• 20-year-olds make $5,000 mistakes

Which mistake would you rather them make? The small mistakes can help save thousands of dollars later.

Examples:

• Smaller versions of real-life experience. Create a family bank and let kids contribute and earn interest or take out loans. Teach them how to price comparison shop so they can learn how to make smart financial moves.
• Moonjar. They don’t have to know how to read, they can associate the colors. This gives them the opportunity to learn about budgeting and that money goes into categories. They know they need to save money and that they won’t necessarily see that money for a long time. They can learn about giving and that money is not just about them, it can be used to help other people.
• The Opposite of Spoiled by Ron Lieber
• Money Mammals
• Moolah U
• Cash Flow Board Game

Don’t wait until college for them to “figure it out”. College shouldn’t be the first time they learn what it means to work, pay for their own stuff, use a bank account, or credit card. Kids can benefit from age-appropriate responsibilities. These methods discussed above can increase financial confidence in kids entering adulthood and ultimately decrease stress on you as parents.

LeBaron Black Dr. A, Okamoto R. Parent Financial Socialization. Financial Therapy Association. Published online April 7, 2023.