By Michael K. Lallana

In addition to physical traits and family values, our children also inherit something that most parents don’t realize our financial behavior. A new survey that looks at American’s financial behaviors reports that many parents overlook this important responsibility and, as a result, may be passing on poor money management skills to their children.

The Money Maladies Survey, commissioned by Northwestern Mutual Financial Network and conducted by Harris Interactive, found that most adults did not discuss money matters with their parents when growing up. However, those who did talk with their parents while growing up are more likely to have saved at least 20% of their gross salary in 1999. Clearly, there is a real opportunity to shape and influence our children’s financial futures.

So why don’t parents routinely speak with their children regarding finances? A key reason is that most parents don’t view themselves as good role models for financial planning. Many parents are “quietly desperate,” says financial planner Paul Gydosh in Financial Planning magazine (January 2001). “They are nowhere close to where they’d hoped to be financially and are hesitant to talk about money.” Yet, ironically, the Money Maladies Survey also found that 60% of American adults are most likely to turn to family members for advice rather than a financial professional.

Modeling Financial Behavior
Young people learn about many things in life by watching and interacting with their parents. In addition to the ABCs, parents need to teach their kids about basic money management, says Professor Mark Schug, University of Wisconsin-Milwaukee, Center for Economic Education. “Children watch their parents in many environments, including those involving spending and saving.” Therefore, he suggests, take time to explain to your child what you’re doing when you make day-to-day saving and spending decisions. Some basic ideas include:

Why do you compare prices of items at the grocery store?
How does a savings and/or checking account work?
What is a debit card? How is it different from a credit card?

Even if parents make money mistakes of their own, children can benefit from such learning experiences. A financial faux pas can provide a great opportunity to humanize money management in the eyes of children. After all, as Gydosh says, “Education leads to comfort.”

Also, teach your child about the importance of “delayed gratification.” Look for opportunities to explain that there is not enough income to buy immediately all the things the family would like to have. Parents might help their child develop a plan to save some of his or her allowance for a gift for a friend or a special toy, Schug says. “All children rich or poor need to understand the importance of making financial sacrifices today in hopes of earning financial gains tomorrow.”

Use creative ways to communicate the fundamentals of finance. For example, you could follow the concept of a 401(k) by matching contributions to your children’s savings, and call it “401(kids).” Or, you might encourage your children to keep a journal to keep track of how much they save and spend, and why they made the decision to use their money that way. Together, the family can discuss these habits in a positive way.

Parents can also take advantage of many resources web sites, books and videos to help them talk to their kids about money. Consider sites like www.themint.org and www.jumpstartcoalition.com, as well as books, such as David Chilton’s Wealthy Barber and Kids, Parents and Money by Willard Stawski.

Above all, talk with your children often. Open communication about life’s many lessons, including financial well-being, can prove to be eye-opening and fulfilling, not only for your child, but also for you.

Source: Smartcents, Northwestern Mutual

About the Author
Michael K. Lallana is a Northwestern Mutual Financial Network Representative who helps clients attain financial security for their families and businesses. He is committed to providing innovative solutions using world-class insurance services and internationally recognized investment products. You can learn more about Mr. Lallana and his financial planning strategies by visiting http://www.nmfn.com/michaellallana