If you’re like most parents, you might not feel qualified to teach your kids about financial topics like investing or managing a budget. In fact, 69% of parents feel more prepared to have the sex talk with their children than the money talk.
What’s the right age to have “the talk” with the kids? No, not the birds-and-bees chat but the dollars-and-cents conversation about saving, budgeting and using credit cards responsibly.
The answer turns out to be the earlier the better, according to a new survey by Capital Group, home of the American Funds, obtained exclusively by USA TODAY. In fact, age 12 or younger is a good time, say nearly 4 of 10 (39 percent) millennial parents, the newest generation of moms and dads. That’s nearly double the percentage of baby boomer parents (22 percent) who started instilling financial do’s and don’ts into their offspring before their teenage years, the survey says.
“These are conversations worth having that will impact how younger Americans invest for their futures,” says Heather Lord, senior vice president and head of strategy and innovation at Capital Group. “We don’t talk enough about the high cost of waiting.”
The survey also shows that different financial topics are broached by parents at different stages of their kids’ lives.
The basic building blocks of personal finance, good advice such as “start saving early” and “making a budget,” are typically addressed during the grade school and junior high years. Thirty percent of parents said they began talking about the importance of an early start to savings when their kids were younger than 12, according to the survey. Eight percent said they even talked with pre-teens about “paying off loans.”
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A second set of conversations tend to occur when life events, such as graduating from college, moving into an apartment or getting married, require more specific types of advice, the survey found. Educating a child on the benefits of investing in a 401(k), for example, works better when they have a job and are starting to invest for retirement.
It’s better for children to “get information at a point in time when it is relevant and they can take action,” Lord explains.
The teenage years, according to parents surveyed, are an important time to pass on life lessons, such as the importance of “having good credit” and tips on “buying a car” and “avoiding debt.” Nearly 6 of 10 (58 percent) parents said the teenage years are the right time to talk about the pros and cons of “using credit cards.”
Guidance on the best way to plan for future financial challenges, such as “buying a home,” “saving for a retirement,” and “purchasing insurance” are best tackled a little later in life, when kids are in their 20s, survey data show.
Moms tend to do more of the talking and teaching than dads do, the survey revealed. And that includes everything from having good credit to starting to save early for retirement,
Most parents surveyed say that they wish someone had shared more money advice with them when they were younger. Forty-five percent of women and 33 percent of men said they wished they had learned earlier about saving for retirement and 401(k) tips.
Parents’ own financial stresses while growing up often shape how they approach the topic with their children.
Those who grew up in a financially “unstable” home were more likely to talk with their kids about making a budget and paying off loans than those who grew up in more affluent families, the survey found.
When it comes to ranking the best source of financial wisdom for teenagers and twenty-something adults, parents (83 percent) ranked themselves as the most important voice. Schools (51 percent) ranked second and financial advisors (41 percent) came in third. Employers, despite providing many Americans with 401(k) retirement plans, were less appreciated, at 35 percent.
Lord says she would like to see employers and retirement-plan sponsors play a bigger role in boosting young workers’ financial acumen, especially since most workers’ rely on their 401(k) to fund their retirement.
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The Capital Group survey lays out five “conversation starters” that parents say can help open the lines of communication with children on money-related issues:
Live within your means
If you don’t overspend and run up debt you can’t pay back, you’re less likely to run into financial trouble.
Start saving early and regularly
The earlier you sock away money for the future and the more of your paycheck you have automatically invested into savings vehicles such as mutual funds or 401(k) plans, the greater your chances of seeing your money grow over time into a sizable nest egg.
Use your employer’s 401(k) match
Don’t pass up free money in your retirement savings account. Make sure you have enough money deducted from your pay for your 401(k) to be eligible for the full matching contribution from your employer.
Don’t carry a credit-card balance
Paying with plastic is OK if you can pay the balance off when you get your monthly statement. If you can’t pay in full, it means you’ll incur debt and get hit with interest charges.
Create a budget
It makes financial sense to know how much money you have coming in each month and how much is going out in bills and discretionary spending.
If you talk with a group of people about money for more than two minutes someone is going to unleash one of the most common financial phrases on the planet: I wish they would have taught this stuff in school.
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