Adjusting Financial Attitudes: Lessons for Parents and their Children

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Most young adults say they wished they’d gotten better financial training from high-school teachers, parents, and even employers, according to a survey on young adults and money conducted on behalf of financial-services provider Charles Schwab.

But when these young adults (ages 23-28) were teens, would they have listened, understood, and acted on their knowledge? Or did the adults in charge fail them in teaching financial literacy?

As the mom of two teenage boys, I can attest that kids don’t always listen perfectly. But promoting financial fitness as an equal priority to physical fitness — essential to a healthy lifestyle — hadn’t occurred to me until I spoke with Carrie Schwab-Pomerantz, Certified Financial Planner, financial literacy advocate, and mom (also President of Charles Schwab Foundation, a nonprofit focused on financial education, philanthropy, and volunteerism and author of the “Ask Carrie” personal finance column).

Carrie talked with me about recent surveys on money attitudes, and shared ideas for teaching good money management habits to kids. A key finding from the 2010 Families & Money Survey was intriguing: Children who regularly did more chores growing up are reported by their parents as more financially responsible as young adults.

I’ve struggled with requiring chores when my kids have been especially busy (during end-of-year exams, for example) in a world where academic achievement is revered. Having graduated from high school in the days before AP classes, I wasn’t sure how to deal with this situation. Carrie shared similar experiences and concerns. She didn’t want to dictate what happened in my home, but recommended that chores remain despite outside pressures. Parents still need to set boundaries, not relieving their children of responsibilities, and remind their kids (and themselves) that life isn’t all about grades. Learning to place family well-being over individual convenience makes sense to me. And, it’s true that academics aren’t everything: many adults have stellar academic credentials but their financial missteps and lack of knowledge keep them from achieving financial independence from parents.

Surveys on Money Attitudes, Behaviors and Concerns

Findings from Charles Schwab’s 2009 Young Adults and Money Survey: Insights into Money Attitudes, Behaviors and Concerns of 23- to 28-Year-Olds and 2010 Families & Money Survey: Insights into Money Attitudes, Behaviors and Concerns of The Sandwich Generation (Americans with Young Adult Children, Ages 23-28, and Living Parents) include:

• “More than two-thirds (69%) [of parents] express a strong preference for their kids to choose a profession they love, even if it means they’ll have difficulty paying the bills, over choosing a profession they don’t love but pays them well (31%).”
• “41% of parents still provide some level of financial support to their children ages 23-28.”
• “The vast majority (86%) of Sandwich Generation parents report they were fully independent from their own parents by the age of 25.”
• “While people care greatly about achieving financial fitness, they don’t incorporate it as a part of a regular routine: Improving financial fitness as a daily activity (18%) does not compete with watching television (77%) or surfing the Internet (72%).”
• “Most [young adults] are becoming more financially conservative. They are eating out less (62%), 'shopping for fun' less (73%), saving more (52%), and modifying their vacation plans (47%)” in response to the economic downturn.

The level of support that many parents provide and the focus on happiness struck me the hardest as I became financially independent at 21 though I graduated from college during a recession. Besides financial literacy, could boomer parenting techniques and young adult attitudes lead to poor money habits? And if so, which ones should be addressed?

Undermining Children's Growth to Maturity

Ones that come to mind now — after reading the book “The Parents We Mean to Be: How Well-Intentioned Adults Undermine Children’s Moral and Emotional Development” — are parents’ overemphasis on happiness above personal development and their desire to be (possibly too) close to their children. I wonder then if these are intertwined, and add to the sense of entitlement. In his book, Richard Weissbourd, a child and family psychologist, Harvard School of Education faculty member, and dad, thoughtfully discusses happiness, closeness, and entitlement:

Our data suggest that across a wide spectrum of cultures and classes, American parents and children view happiness as the main aim of development and place it above other important values...

when we as parents get in the habit of doing small things to make our children’s lives easier — when we clean up after them, drive them places that they could walk to, fill out applications for our teenagers, pay teenagers’ parking tickets, or regularly jump in to solve children’s problems with peers, teachers, or coaches — we run the risk of making our children more fragile, entitled, and self-occupied.

Our challenge is to relinquish the gratification and power of influencing many aspects of how children view themselves and the narcissistic satisfaction of being the center of our children’s world.

So, parents want their kids to be happy, even if it means that kids-turned-adults can’t pay their bills, and parents will continue to provide financial support, not as a solution to an unusual situation but as common practice. Their grown children don’t need to make difficult choices or learn to exercise creativity in earning, budgeting, saving, or spending money.

My conversation with Carrie reinforced the idea that the pursuit of happiness needs to intersect with reality, and that making financial decisions means considering both immediate results and long-term ramifications.

Sink or Swim?

I wondered and then asked Carrie about the possibility of a sink-or-swim approach to financial readiness, perhaps as a straightforward solution to a complicated problem. Wouldn’t kids figure out personal finance if forced to? But Carrie said that we needed to raise the comfort level of kids and teens so that they are ready to make decisions as young adults.

Upon reflection, the truth is that the consequences of financial illiteracy are much higher than when I was in my twenties. Lack of financial literacy can inflict serious damage. For a time, lax credit standards made it easier for people to borrow a lifetime worth of student loans before graduating from college and way too much on their mortgages — all well before leaving the young-adult phase.

Teaching Financial Literacy

To equip children and teens with capabilities for being financially responsible, Carrie recommends the following:

Chores and Allowance

• Assign chores to teach children that they need to contribute to the well-being of the family.
• Give an allowance so that children can learn to manage money, and make choices about spending, saving, and giving.
• Consider linking chores with allowance as children tend to have greater appreciation of the value of money when they work for pay.
• Let children make mistakes with their money and don’t bail them out when they do.

Money Management

• Teach money management as a life skill.
• Have conversations about personal finance in the same way that you might discuss school, dating relationships and sex, drugs and alcohol, etc.
• Explain budgeting, spending, saving, and investing; and explain how banks and financial markets work.
• Give teens enough information so that they will feel comfortable making financial choices and using financial products.

Work

• Have your teen get a summer job. Teens who have summer jobs tend to become adults who are stellar savers.
• If your teenagers can’t get a job because of the economy, let them work in unpaid internships to get used to the idea of working and explore career options in their chosen fields.
• To get an internship, encourage them to meet with adults who can offer career insights and serve as a role model and, possibly, mentor.

Credit Cards

• Get a credit card for your teen to provide practical instruction in money management.
• Set a limit on how much your teen can charge, and then monitor the activity closely.
• Help your teen understand the details of how a credit card works, what the interest rates and fees are, and when the bills are due.
• Make sure they understand that they should always pay off the balance due every month on time (and review how much it costs to carry a balance).
• Explain the importance of having a good credit history.
• Pay cash for smaller purchases (under $10).

Carrie tells me that teaching (or learning) healthy money behaviors is like any habit: make a small bit of progess every day in order to reach your goal.

For more money insights and education, visit Schwab MoneyWise and Ask Carrie: The Personal Side of Finance.