Head Start: Planners Build Path to Healthy Financial Habits

Journal of Financial Planning: May 2022


Danielle Andrus is editor of the Journal of Financial Planning. She can be reached at dandrus@onefpa.org.

Planners who aim to help their clients build financial stability and develop good money habits can provide enormous value by helping them have these conversations with their kids. Although some parents might be finding it easier to talk about money than in the past—T. Rowe Price’s “Parents, Kids & Money” survey found that in 2021, 47 percent of parents said they were having money conversations with their children at least once a week, up from less than 35 percent in 2017—there’s plenty of room for improvement.

T. Rowe Price surveyed families with kids in the 8- to 14-year-old range, but waiting that long to have these conversations does a disservice to clients’ offspring. Children begin to form habits much earlier, according to research from the University of Cambridge. Researchers found that children begin to display inhibitory control (the capacity to plan and control impulses, including suppressing inappropriate behaviors) between ages 3 and 5. Children under age 7 can understand the “why” behind financial behaviors, according to the report.

Young children can understand simple financial concepts, noted Jamie Bosse, CFP®, RFC, a principal and wealth manager at Aspyre Wealth Partners, but parents struggle to pass on this knowledge when they’re struggling with these concepts themselves.

“A lot of times we shy away from the conversation because one, it’s taboo—we shouldn’t be talking about money—or two, we don’t feel comfortable enough in our own financial situation to then relay the right message to the kids,” she said.

Starting early is imperative, she said, because our financial biases are established around age 10.

When to Start

Around ages 3 to 5, kids can understand how to identify coins and their value, Bosse said. They can understand that money is earned by working and that sometimes you have to save money to buy something you really want.

Bosse has written a series of children’s books to help introduce kids to financial topics in friendly ways. Two books have been published, with two more expected later this year and in 2023. She looked close to home for inspiration on how to introduce money topics to kids—Milton, her family’s corgi. Milton the Money Savvy Pup shows young readers how to identify coins, why they might want to save instead of spend, and what else they can do with their money.

Money conversations should also focus on things that can’t be bought, she pointed out. “A lot of things in life that have value do not cost money,” Bosse said. One of her upcoming books talks to kids about “appreciating the things that you have and also trying to talk to consumerism. We’re all bombarded with social media and commercials and everything [telling us] we need to buy this and our lives will be so much better. We already have a lot of blessings, so let’s focus on that.”

Kid-friendly Interventions

As a CFP® professional with over 20 years of experience in different parts of the financial services industry, Mac Gardner, CFP®, founder and chief education officer at FinLit Tech, saw how pervasive the lack of financial education was among people of all ages.

“The thing that always kept coming back to me is this lack of education. I wrote my first book, Motivate Your Money, for adults because I was working with people who had a lot of money but didn’t have a lot of education about things that we take for granted in the business.”

Planners have the right expertise to provide this education, but talking to a younger audience requires different tools.

“On a daily basis, we’re talking about finance. We’re talking about the tools and mechanisms needed for folks to walk their financial life journey and eventually reach those goals. Who better than a financial adviser to be able to say to a client with a young child, ‘Here’s a tool that you can use to help start that conversation that you never got with your kids.’”

He was encouraged to write a children’s book by one of his clients, who served on the board of a nonprofit, Jack and Jill of America, a youth leadership organization that focuses on women of color and their children.

In The Four Money Bears, Gardner created four characters to illustrate the four core capabilities of money.

“There are only four things you can do with money—spend it, save it, invest it, or give it away—so each bear represents one of those functions of money. What we want to do in this book is just to show kids and parents (a lot of parents have thanked us for writing this book) that all four functions need to work together in order for there to be long-term financial success.”

In addition to his book, Gardner created an app with Dillo Games that walks young learners through earning and spending money. Players run a berry farm and complete quizzes and quests teaching them about financial literacy.

“We were looking around, and we noticed there’s a bunch of tech out there that allows you to do stuff with your money—investing, banking, and lending on your phone—but there’s very little technology that’s actually helping to teach you what to do with your money,” Gardner said. “We view the app as sort of an on-ramp to a child’s financial education journey. When you’re that age, you want to have fun when you’re learning. Gamification is a big thing.”

He continued, “I intentionally made two of the bears boys and two of the bears girls. I intentionally made them all different colors as an overt nod to the need for more diversity, equity, and inclusion in both the financial services industry and in the fintech industry. We’re hoping to really open some eyes and reach communities that really haven’t been reached before through technology.”

Habits Start at Home

When he started doing book readings at elementary schools, Gardner brought a $100 bill with him and asked students what they would do with that money.

“Nine out of 10 kids’ responses were that they would buy something. I would do it over and over and over again, and what it really led to was an interesting research project. It shows that children are almost conditioned to consume very early. The first response is to buy something, not invest, not save, not give. What we also found out is that a child’s first reaction with money, their first habit, is actually their spending.”

Children learn these habits from their parents, Gardner said.

“The children are listening to how mom and dad talk about money. They listen to and observe what they do with their money.”

Gardner instructs his clients about three Rs when he’s walking them through money conversations with young kids: realization, recognition, and rationalization. Children can realize what money is at very young ages and recognize that they have different options for what to do with it. The problem is that they rarely learn until they’re much older the full extent of their options.

“Once you realize what [money] is, you then have to recognize what the options are,’” he said. “For most kids, because they’re not getting that education or that awareness early in their life, the two options are to spend it or to save it.”

As they get older, that narrow view makes it harder for kids to achieve the third R—rationalization—and envision long-term financial goals.

“If your solution set is only two things, it’s hard to then rationalize all the various things that money can do for you once you have it. That’s why we find it really important to expose these young minds to these four options as early as possible.”

Even planning professionals can struggle to get these messages across to their own children. Bosse said she was inspired to write her books after an interaction with her son while shopping.

“My first son and I were at Target, and he wanted this remote-control Grave Digger monster truck. It was $60 or something. I said, ‘That’s not in our spending plan.’ And he said, ‘Well, just buy it on Amazon,’ like Amazon wasn’t a financial transaction. That’s actually what prompted me to be like, ‘OK, how can I communicate this better to you?’”

That’s an experience that a lot of planners and their clients share, Gardner said.

“The book literally is a story of me and my wife taking our kids to Target, and the first thing they run to is the toy aisle. We have to say, ‘We’re fortunate that we can buy that toy, but do you really understand what your options are when it comes to money?’ That’s a very shareable story for a lot of advisers and a lot of parents.”

Life Lessons

Bosse noted that a lot of clients want to help their kids have a better life than they did. “It’s a good segue to educate them on some of these things. ‘OK, your kids are 11 and 13. Some concepts that they can understand are talking about credit cards and how they work. You can start talking about interest in a savings account and how that works.’”

She acknowledged that the financial struggles clients grew up with were also valuable life lessons. “They don’t want their kids to have the same burden when they go into their working lives. But the problem is, they learned a lot from that experience. . . . They struggle with how [to] teach them these lessons without them having to have a hard time.”

Bosse encourages clients to let their kids make financial decisions—including bad ones. “If you pay allowance for chores, or if you pay allowance just for a learning opportunity, let kids actually decide how to spend the money and then talk about it with them afterwards. That way, you’re cementing these lessons early on that you make good purchases and you make bad purchases. What should we learn from them?”

Why it Matters

“You don’t have to look very far for headlines about how financially troubled our society is. Tons of people have filed for bankruptcy. Student loan debt is at crushing, all-time highs. Seventy percent of Americans live paycheck to paycheck,” Bosse said.

“How did we get here? A lot of it is because we never talked about money. We didn’t learn about it in school. We didn’t formally learn about it in any way. We picked up things from our parents and our friends, and the rest was trial and error. We’re seeing the impact of that later in life with society the way it is today.”

Gardner believes there’s a formula for financial wellness.

“You’ve got to have the financial education—that’s important. Education is key. But you need to also have financial capability. If you have a bunch of education, but you don’t give people the tools to be able to enact it and get involved, you won’t be able to reach financial wellness. In my mind, financial wellness is financial literacy plus financial capability.” 

General Financial Planning Principles