In today's complex financial landscape, equipping children with the necessary skills and knowledge to navigate their financial futures is more important than ever. Dr. Bryce Jorgensen and colleagues shed some light on how parents can effectively prepare their children for financial success, emphasizing the critical role of parents in this learning and preparation.[1] In their study, they found that parents can significantly influence their children's financial competence through (1) active involvement, (2) open communication about finances, and (3) establishing a supportive financial environment for their child. Our aim in this article is to help inform parents of potential practices that might help them prepare their children for future financial success.
Active Involvement
Parents play a crucial role in fostering their children's financial success by providing direct resources and guidance that enable them to develop financial independence. By setting up savings accounts, opening investment portfolios, or providing opportunities for entrepreneurial ventures, parents can equip their children with the tools needed for long-term financial growth. For example, parents who help their children open a custodial account or guide them toward understanding the benefits of compound interest instill habits that will serve them well into adulthood. Additionally, financial literacy can be reinforced through access to educational resources such as books, online courses, or financial mentorship, empowering children to manage their own money.
Beyond material resources, parents can actively contribute to their children's financial success by modeling smart money habits. This includes demonstrating the importance of budgeting, saving, and investing by incorporating these practices into the family’s daily life. Parents who make informed financial decisions and showcase patience in building wealth teach their children the value of long-term planning and fiscal discipline. Moreover, supporting children in gaining practical work experience—such as internships or part-time jobs—can provide them with valuable lessons about earning, spending, and saving. These formative experiences often lay the foundation for a financially secure future, shaping how children perceive and approach money management as they grow older.
Open Communication
Secondly, parents creating a safe space for their children is essential to maintaining open communication about financial matters.[2] Jorgensen and colleagues emphasize in their article that financial education is not a one-time event but an ongoing dialogue. Parents should encourage their children to express their thoughts and feelings about money, allowing them to voice any anxieties or misconceptions they may have.
Establishing check-ins, where financial topics can be discussed without judgment, is one of many effective strategies you could implement. These conversations can be formal or informal and can cover a range of subjects, from the importance of saving for future goals to understanding credit scores and debt management. Developing this communication with your child helps form a sense of partnership which can help your child feel supported and informed as they make critical decisions.
Providing Opportunities
Finally, it is important for parents to create a supportive environment that encourages their child to participate in responsible financial decision-making processes. This includes providing them with opportunities to manage their finances in a controlled setting, such as giving them a monthly allowance or encouraging them to save for specific goals. By allowing the child to experience age-appropriate financial responsibilities, parents can help them develop essential skills like budgeting and prioritization. Such experiences can help the child as they prepare for emerging adulthood.
Moreover, parents should educate their children about the tools available to manage finances effectively, such as budgeting apps or savings accounts. Encouraging children to set financial goals—both short-term and long-term—can also provide them with a sense of purpose and direction.
Summary
The insights presented by Jorgensen and colleagues provide valuable guidance for parents seeking to prepare their children for financial success. By being actively involved in teaching your child about finances, fostering open communication, and creating a supportive financial environment, parents can significantly enhance their children's financial literacy and decision-making abilities. As the financial situation of children and emerging adults continue to evolve, it is imperative that parents recognize their pivotal role in shaping their children’s financial futures. By taking proactive steps, parents can equip their children with the necessary skills to navigate future financial challenges with confidence and competence.
Takeaways
1. Money Chats with Your Child. On a regular basis, set aside time to discuss financial topics with your child. Use these sessions to review their spending, savings, and financial goals, encouraging open dialogue and addressing any questions they may have.
2. Create a Budgeting Challenge. Encourage your child to create a monthly budget and track their expenses. One idea might include offering to match their savings for a specific goal to motivate them and make it a fun, collaborative experience.
3. Explore Financial Resources Together. Research and select a few financial literacy resources, such as online courses, books, or apps, that you and your child can work through together. Working together will not only enhance children’s knowledge but also reinforces the idea that financial education is a lifelong journey.
Reference:
[1] Jorgensen, B. L., Allsop, D. B., Runyan, S. D., Wheeler, B. E., Evans, D. A., & Marks, L. D. (2019). Forming financial vision: How parents prepare young adults for financial success. Journal of Family and Economic Issues, 40(3), 553-563. https://doi.org/10.1007/s10834-019-09624-4
[2] Pak, T., Fan, L., & Chatterjee, S. (2024). Financial socialization and financial well‐being in early adulthood: The mediating role of financial capability. Family Relations: An Interdisciplinary Journal of Applied Family Studies, 73(3), 1664–1685. https://doi.org/10.1111/fare.12959