One duty that makes many parents uncomfortable is sitting down with their kids for “the talk.” No, not that talk. The money talk. Nearly half of “millennial” young adults say they do not get financial advice from their parents, according to a new Fidelity survey.
Money discussions can happen in a variety of ways, from casual conversations to formal family meetings regarding specific situations. And these discussions should address the parents’ financial situation as well as the kids’—a combination of advice about things like budgeting and investing to discussions about the parents’ net worth and estate planning.
1. Keep your advice brief.
It can be difficult for newly independent young adults to acknowledge that they can still learn something from their parents. To break through that reluctance, try to keep your advice from sounding like a lecture. Offer guidance that’s brief and to the point, then follow up by suggesting resources that provide more information.
Try this: You might, for example, point out that credit card debt is expensive and finance charges can pile up quickly. Then send your child a link to an article about managing credit cards wisely, such as this Viewpoints article: “7 steps for using credit cards wisely.”
2. Share your experiences.
Let your kids know what went right—and wrong—in your financial decision making. And be specific. You’ll establish credibility with your kids by owning up to your mistakes and showing them that your advice is based on helping them to avoid those same mistakes.
Try this: Tell your story, then suggest this Viewpoints article: “How to pay off debt—and save too.”
3. Keep your expectations in check.
If you expect your adult child to follow all your advice, you’re going to be disappointed.
Try this: Accept the fact that your child is going to make financial mistakes despite all your best efforts to help him or her avoid them. By showing that you can hear bad news without being judgmental, your child will be much more inclined to share information with you.
4. Set rules when lending money.
When asked, nearly half of millennials have received some kind of financial assistance from their parents at some point since leaving home. Topping the list are cell phone bills, car insurance, and groceries. When it comes to lending money to your children, you may want to have some sort of agreement.
Try this: Let your kids know that giving or lending them money doesn’t entitle you to manage their finances. At the same time, you can and should establish conditions that are appropriate to the type of support you’re providing. For example, if you agree to help out with their college loan payment, they contribute something every pay period to their 401(k). Or, if you offer temporary help with the rent, be clear about exactly how much help you’ll provide and for how long.
5. Discuss investing strategies.
It’s helpful for your kids to hear how you decide where to invest your money. It will help them understand the need to be strategic in their decisions and make choices that are suited to their own time horizon, risk temperament, and financial goals.
Try this: Talk with your kids about basic concepts such as diversification, and show them how you have incorporated these principles into your investment portfolio. Suggest they read the “Fundamentals of Investing.”
6. Set a good example—and let it show.
One of the findings in Fidelity’s survey that parents may find painful to hear is that 41% of Gen Y adults didn’t feel that their parents provided a good example of how to have a successful financial future. Ouch.
Try this: Part of the reason for this finding may be that many parents are reluctant to discuss money topics, so kids simply don’t know what their parents are doing right in managing their money and saving for the future. On the other hand, we could all probably use some reinforcement on the principles of sound financial planning and do a better job of setting an example. So when offering advice to your millennial, you might try adding, “This something that could help me, too, and I’m going to start” saving more, borrowing less, etc.
7. Don’t avoid the inheritance topic.
One reason cited by parents for holding back on discussing their net worth is that they don’t want to inflate their kids’ expectations of an inheritance. It’s a legitimate concern, especially in families with significant wealth. Parents are fearful of creating a disincentive for their children to put forth their best effort in pursuing their own career and financial independence.
Try this: As usual, openness and honesty are the best policy. Tell your children your concern and explain that it isn’t because you doubt their character but because you have been around long enough to see that wealth can be a burden as well as a benefit—and you want to be sure that your family’s money doesn’t hold them back from building their own legacy. Then go ahead and talk.
Why it matters
There are many reasons why discussing financial matters with your adult children is important, but perhaps the most compelling of all is that it will help build trust and increase their comfort level in seeking financial planning advice. In the Fidelity survey, only one in three Generation Y adults said their parents were their most-trusted source of financial advice, and one in four said they don’t trust anyone to provide financial guidance.
Financial conversations aren’t always easy, but they’re a great long-term investment. So try to set aside time once a year for a discussion, perhaps during the holidays when the family is together.