By Lyn Dippel
In a recent study of parents with incomes over $100,000, only 17 percent said they would discuss their income or net worth with their children under the age of 18 – close to 20 percent said they wouldn’t share this information with offspring at all.
Some parents want to protect their children from stressful subjects. Others have concerns about privacy.
Children sense the power of money and are naturally curious. By keeping the issue in the shadows, we may be sending the message that we don’t trust our children with financial information. The next generation faces tremendous financial challenges in the fickle employment environment and with the elimination of pensions. The more we talk about money with our kids, the better prepared they will be.
Wealthy parents, who may fear their children will be less independent and motivated knowing there is money, can gradually convey values to the next generation by discussing their own finances.
Parents may be surprised by how much internet savvy teens already have. Anyone can look up home values (and sales history) on Zillow.
Families in more challenging situations may be less likely to share information, but children notice fluctuations in spending or employment, or if their lifestyle differs from their peers’. Sara Solnick, a professor at the University of Vermont who writes about social comparison, advises that if you aren’t open with your children, “They are drawing their own conclusions.” She advises that, “Talking with them may help ease their fears.”
JUST WHAT SHOULD YOU SHARE?
Joline Godfrey, a family financial education consultant suggests, “Start by using the same, simple line every time your child asks you a money question: ‘Why do you ask?’ Don’t say it with disapproval or defensiveness; make it clear that you’re glad your child asked.”
Jane Pearle, author of “Kids & Money,” says it’s important to start by discussing what you spend. If you tell them how much you make, it will probably sound like a fortune unless they also understand monthly expenses.
HERE ARE SOME GUIDELINES:
Elementary-age kids. At this age providing details is not recommended. Simply understanding that the family has enough will give them a sense of security. They may also have general questions about how the world works such as: “What are taxes?” or “How do people buy houses?”
Middle and high school students. Add more details, such as living expenses and how fixed expenses and taxes affect discretionary spending. As high schoolers approach college, parents should frankly discuss schools they can reasonably afford and what the child might be expected to contribute.
Adult children. Over time it is important to share more in case something happens to you and a son or daughter needs to step in to handle finances. It is also helpful for offspring to know if their parents intend to help with college funding for grandchildren and whether they have enough to manage their own affairs for the remainder of their days. This information will affect their own financial planning. Parents may or may not choose to share their estate plan with adult children, but at a minimum offspring should know where to find the information if something should happen.
All family situations are different. Even if you are not completely comfortable sharing details with your children, any conversation is better than none.
Lyn Dippel, JD, CFP®, president of FAI Wealth Management, provides financial planning and investment management for transitions such as retirement, career changes, sale of a business, relocation and inheritance. http://investfai.com/