Talking to your children isn’t always an easy thing to do, especially if they happen to be a member of Generation Z or a Millennial (young people born in the mid-1980s to mid-2000s). These young people can often be found with some kind of device in their hands, earbuds in their ears or sharing videos with their friends on SnapChat. I know because my 21-year-old son fits the description. Sometimes it is hard to find a moment when I’ve got his undivided attention, when he isn’t moving a mile a minute.
As children begin to edge into adulthood most parents have already had the birds and bees talk with them. However, there is another important topic that is almost as dreaded for both parents and kids: personal finance.
It can be awkward to bring up the word “finance” with your children. In fact, a survey showed that parents are nearly as uncomfortable talking to their children about money as they are discussing sex.
Yet, it’s our duty to guide our children on financial topics as they reach major milestones in their lives such as getting their first job, going to college and buying a home.
As a mom and someone who works inside the financial services industry, I understand how essential it is to make time to talk to my son about this important topic because it will impact his entire life. To be clear, parents are not expected to be financial experts. There are great resources and materials available to help you. For example, my company, Bank of America has partnered with Khan Academy to develop BetterMoneyHabits.com, a free online resource that combines Khan Academy’s expertise in online learning with our financial know-how to deliver unbiased and easy-to-understand information on a wide range of personal finance topics.
However, there are ways you can jump start the conversation at home. Here are some ideas for talking about finance during key life moments where a little parental advice comes in handy.
First Job: First jobs mean first paycheck and first big spending decision. This is the perfect time to help your teenager or young adult understand the importance of saving money and how to budget to avoid overspending. The word budget may seem scary to some, but it’s simply knowing how much you make and how much you spend. Have your children think about their monthly expenses, items that they’d like to buy and then show them how much they have left over, if any. Talk to your child about needs versus wants and how to make trade-offs. A significant part of any budget is savings. If your child would like to buy a big-ticket item (new computer, new car) it can help motivate them to start saving. Routinely setting aside just a bit of money for savings is a valuable habit to teach your children. Having the discipline to regularly put aside money is hard enough for many adults, and learning the habit of saving early can make saving throughout your young adult’s life much easier.
When my son wanted to study abroad, we had a conversation about how he was going to pay for expenses while he was in Europe. We looked at how much he was making working at his job, how much he spent each month and how much he could put into his savings account for the program. He understood that if he didn’t eat out one day, that extra money could go to his savings account. Now he’s on his way to Europe to study, which wouldn’t have been possible if he didn’t budget and save.
First Credit Card or Loan: The credit conversation is a tough one. The average American household carries more than $7,000 in credit card debt and nearly two-thirds of college students graduate with some form of student loan debt. Yet despite our reliance on plastic and loans, few parents know how to explain the complexities of borrowing money. Thankfully there are many resources available to help parents, such as your local banks and online sites where you can get more information on how credit works. Even if your financial knowledge is limited, where your guidance is critical is in teaching your child to ask good questions when making financial decisions:
● Is this purchase or loan necessary? Do you need it right now?
● Could you save money for a few months to pay for it instead of borrowing money?
● Do you have enough money in your budget to cover the monthly payment?
● Does this purchase or loan affect your ability to pay for a future expense?
Asking smart questions will help your child avoid making impulsive decisions and potentially taking on too much debt.
I recently had a conversation about credit with my son. Now a senior in college, he has started to look at going to law school after he graduates. He wants to buy a home in the area where he will attend law school and rent it out as a way to earn some income. We talked about the importance of establishing credit and not taking on more than you can handle. We helped him open a credit card and made sure he knew the questions he needed to ask himself before using his credit card instead of his debit card.
First Home: While we’re on the topic of home buying, for parents of older millennials, your children might be talking to you about purchasing their first home. Buying a home is a big purchase and one way you can help prepare your children is to have an open conversation. Help them think about the decision and answer questions like:
● Can you afford the monthly payment?
● Do you have enough for a down payment?
● Do you plan to live there for at least five years?
● Do you need help from me?
This last question is an important one. According to a recent Bank of America Homebuyer Insights Report, two-thirds (66 percent) of first-time millennial buyers still expect some type of help from their parents when buying a home, ranging from financial support to assistance moving in. There are many ways you can help your children with their first home – whether it’s giving them a gift for the down payment, helping them co-sign or providing them with a loan. However, you need to be clear on what you can do and talk to experts (like a mortgage officer, CPA or lawyer) to understand the best way you can provide assistance.
Whether it’s talking about the birds and the bees or financial decisions, difficult conversations are essential for your children’s growth. Working in finance, I have seen what a difference these types of conversations can have on how people approach their everyday financial needs. The trick is to start early and over time, you’ll teach your children how to live healthier financial lives.
Vera Stewart is a Senior Vice President, Financial Center Market Manager at Bank of America. She is based in Los Angeles and has been with Bank of America for 33 years.