Starting a Financial Conversation with Your Children

The market volatility experienced so far in 2020 is enough to rattle the confidence of the most experienced investor. So, imagine if you were just starting your career. It’s easy to say that you would commit all your available cash to invest in stocks since you now know that a long-term time horizon and ability to take risk has paid off over your lifetime.

But what about your adult children? Do they see this as an opportunity to take advantage of potential gains, or does this solidify their fears about the stock market “taking away” wealth?

At the outset of this article, some assumptions were made that young people may not invest due to suspicion of a system rigged against the average investor or worries that the stock market can erase gains as quickly as it makes them. However, after researching the topic and some casual polling of some acquaintances in their mid-to-late late 20’s, it became clear that many were simply lacking the education about why investing early is valuable and how to navigate the logistics.

In many cases, they just needed a conversation with their parents to kickstart their investing careers.

If you’re a parent of younger adult children, think back to your own experiences at that age. How did you learn about investments? Did your parents’ opinions of the market, government, or their employers influence your attitude towards building wealth? What do you wish you had known when you first started? Did a parent or teacher sit down with you to go over the logistics of opening a bank account or investing in a stock?

Now, think about your children. How have your remarks about the market influenced them? Is it possible that you more often comment when the market is down, as opposed to during sustained rallies? And keep in mind that they most often learn from you, from school and friends (although it probably seems like the reverse order). If you’re not teaching them, who is?

When starting a conversation about finances with your children, make sure it’s a conversation, not a lecture. Think about what they might wish they had known when looking back at their youth.

• Teach them that investing is a marathon, not a sprint. The earlier you start, the faster you get to the finish line, mainly due to the magic of compound growth.
• You don’t have to have “a lot” of money to invest. Even if they’re investing $25 a month into a Roth IRA, it gets them on the right path.
• Provide basic education about the difference between a stock, a bond, and cash. What is the use of each?
• How do you create a budget to make investing a priority?

Keep in mind that your children may take this information and form their own opinions about the economy and the markets, and that’s okay. Or perhaps they would benefit from hearing some of this information from a third party, like a financial advisor. We often educate the children of clients on the basics of investing.

While we want young adults to develop their own ideas about investing, be on the lookout for your children’s opinions being skewed by others, and be ready to redirect. For example, you may hear that pensions are better but companies switched to 401(k)’s since pensions reduced profits. So, don’t invest in 401(k)’s to “show” your employer that you would like a pension. Or perhaps you hear your kids say that retirement accounts “lock up” your money and that this lack of accessibility doesn’t outweigh the tax benefits. It’s important to give them the perspective of how to make tax laws work for their benefit and that it’s possible to build financial security even without a pension plan.

If you’re not sure how to approach this conversation, we are here as a resource. We can give you ideas about how to start, or even arrange a consultation with one of our younger advisors who may be better able to relate to your children’s situations. Nothing makes us more inspired than to give a young person an “aha” moment when they connect investing with future choices and freedom.