How can we teach children to adopt some of the same behaviors and decision-making skills that millionaires next door have when it comes to managing finances? Is there a book, checklist, or blog that will ensure that children will magically adopt saving, spending, and other related behaviors that will set them along the path to riches? Many resources provide financial literacy education to our children. Still, only a few of these financial education-type resources help children build the behavioral or psychological wherewithal to transform literacy into actual saving, spending, and investing decisions that are beneficial long term.
Likewise, while literacy resources are helpful, most of us acquire knowledge and behaviors through the modeling and teaching of those around us. And, for children, that’s often their parents. For example, hyper spending parents may end up with hyper spending children. If you want your children to adopt the behaviors of economically successful individuals, then you’ll have to start modeling the habits of self-made millionaires yourself. Consider what researchers found related to how children learn money behaviors:
Researchers found that parents provide three general themes of financial management to children…saving, how money is managed, and how financial matters are discussed. The vast majority of children in these studies learned about a family’s propensity for saving and financial management through direct observation versus through conversations regarding these behaviors. In other words, parental behaviors tend to stick with children more so than [a] discussion of what ought to be done related to money.
Are you passing down habits to your children that may lead them to need economic outpatient care in the future? Or are you instead demonstrating behaviors that lead to amassing wealth overt time? Here’s a list of questions to consider as you think about the types of wealth-building or wealth-prevention habits you may be sharing with the next generation. Use them to gauge your teaching and parenting skills when it comes to millionaire-next-door-type behaviors:
- Do your children ever observe you paying bills, researching how to save money, reading financially-focused books/newspapers, or visiting personal finance sites? Modeling the management of finances demonstrates the importance of these types of activities to your children. Prodigious accumulators of wealth spend more time studying investments and planning for future investments than under accumulators of wealth. By modeling financial management activities to your children, you will prepare them for taking on these kinds of tasks in the future.
- Do your children have unfettered access to spending money? Do they have a clear understanding of who pays for what in your household? Providing clear delineations between your money and their money from an early age can prevent the dreaded need for economic outpatient care in the future. Depending on the social influences around you and your household, this recommendation can be challenging to implement. As an example, having teenagers pay for their own “wants” can be particularly challenging when their peers have unlimited access to their parents’ credit cards. Communication is critical to establish these boundaries early.
- How often do your children see you come home with a new purchase? How often are packages showing up at your door? If the answer is “daily” or thereabouts, you may be setting in stone a pattern of spending and consumption behaviors that they will want to emulate once they are out on their own.
- How do you refer to those around you (neighbors, friends, family members) in terms of what they drive, buy, and wear? Are you focusing too much on the Joneses? If your family conversations tend to center on possessions, you may be teaching your children to focus on the consumption behaviors of others. In turn, they may begin to judge their success or failure by the artifacts of wealth instead of relationships, achievements, or other goals.
The rewards of providing your children with a model of effective financial management will take time to appear. Consider them a deposit in the future account of your children’s well-being, instead of gratifying requests today or providing an easy “yes.”