Are you uncomfortable having "the talk" with your kids? No, not that talk. The money talk. You may not be alone. More than one-third (34%) of millennial young adults admit they find it difficult to start conversations with their parents about saving and investing, according to the Fidelity Investments® Millennial Money Study.1
"Parents and their young adult children may not be communicating as well as they could be about money," says Ann Dowd, CFP®, vice president at Fidelity. "That's a big concern for both. The kids are missing out on important lessons learned by their parents, while the parents are risking potential confusion over family wealth and elder-care issues that arise as they age."
Money talks can be casual conversations or formal family meetings regarding specific situations. And they should address the parents’ financial situation as well as the kids'—from things like budgeting and investing to discussions about the parents' net worth and estate planning.
The time, place, and subject for these financial talks will vary depending on your family circumstances and temperament, but here are some pointers for talking about money with your adult children.
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. Stay brief and to the point, then follow up by suggesting resources for 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 credit card tips.
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 avoid those same mistakes.
Try this: Maybe you realize that you should have started saving earlier for retirement, or that you could have put yourself on solid financial footing sooner if you had been smarter about paying off various types of debt, such as credit cards or college or car loans. More than two-thirds of those surveyed agreed that their parents learned from their past financial mistakes. So 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: The way to avoid frustration—and allowing it to spill over into other aspects of your relationship—is to accept that your child is going to make mistakes despite your efforts to help him or her avoid them. Showing that you can hear bad news without being judgmental, your child may be more inclined to share information with you before the negatives multiply.
4. Set rules when lending money
When asked, nearly half of young adults (47%) 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. And 25% said that at one point they did have to move back with their parents for financial reasons after they had been on their own.
When it comes to lending money to your children, you may want to have some sort of agreement. It doesn’t have to be a formal contract, but it would probably be better if you set some specific rules, whether your help is in the form of cash or a loan.
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 support you’re providing. For example, if you agree to help out with their college loan payment, you might require that they contribute something every pay period to their 401(k). Similarly, if your child is moving to a high-cost-of-living city for a new job, you might offer temporary help with the rent, but be clear about exactly how much help you’ll provide and for how long.
5. Discuss investing strategies
In general, the investing approach of young adults is going to be different from that of their middle-aged parents. Still, 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 appropriate for their situation.
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 Viewpoints article: 3 reasons to invest in stocks. This article explains that if you're young and saving for a far-off goal, not investing in stocks may be risky.
6. Set a good example—and let it show
One of the findings in our survey is that 65% of young adults felt that their parents provided a good example of how to have a successful financial future. Keep it up.
Try this: Who doesn’t need some reinforcement on the principles of sound financial planning? Try setting an example. So when offering advice to your adult child, you might try adding, “This is 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 efforts in pursuing a career and achieving financial independence.
Try this: Openness and honesty are the best policy. Tell your children your concern. 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. 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.
8. Discuss your finances with your kids at least once a year
Setting aside an hour on a holiday when everyone is together can be the perfect way to bring everybody up to speed on family finances. You can provide updates on your retirement plans, your charitable contributions, or any changes to your estate plan. The kids can offer their thoughts and share information about their own financial concerns and progress. Be careful not to pry. Allow your kids to share as much as they’re comfortable disclosing, and remember that the more open you are, the more they will be, too.
Try this: It’s important to tell your children about your retirement plans to ease their concerns about your future. Our survey found that the biggest areas of disconnect between parents and their millennial kids was about the importance of having frank conversations about parents’ ability to cover living expenses in retirement, their health, and issues surrounding long-term care and elder care. Interestingly, kids thought those topics were much more important than their parents did.
Why it matters
There are many reasons why discussing financial matters with your adult children is important. Perhaps the most compelling is that it will help build trust and increase their comfort level in seeking financial advice. In our survey, only 22% of young adults (age 25 to 35) said their parents were their most trusted source of financial advice, and one-third said they don’t trust anyone on money matters.
Financial conversations aren’t always easy, but they’re a great long-term investment.
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