by Adam Smit

Apple Doesn’t Fall Far From the Tree

Financially fit adults tend to produce financially strong children. As the idiom suggests, the apple doesn't fall far from the tree. I am not referring to an inheritance, but rather to the good financial behaviors taught to their offspring. I strongly believe it is the parent's responsibility to guide the child and help them develop a good financial sense from an early age. By no means am I schooled in the psychology of parenting, but the following thoughts and suggestions on raising a financially fit child comes from my prospective, observations, as well as studies conducted on this subject.

As parents, we should teach our children there are three distinct things you can do with money: spend it, save it, or give it away. One is not more supreme than the other, but a healthy balance of each is the best. The amount and relationship between these three are a good way to start teaching about budgeting. Work with the child to determine how much should be spent, how much should be saved and/or invested for future goals, and how much should be given away. This is a good time to work with the child to understand the difference between "needs" and "wants". This is also a good opportunity to teach the child that decisions today impact your well-being tomorrow. In their annual study and report on kids and money, T.Rowe Price

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reports that 32% of parents did not offer an allowance to their children, while 11% gave an allowance with no-strings-attached, and 57% offered an allowance to their children after earning it. Rather than giving the child a no-strings-attached allowance, incentivize the child by paying them a "wage" to do extra things around the house. By associating work with reward, the child will not grow up with a sense of entitlement. A hungry dog hunts harder. In their book "The Millionaire Next Door"2, authors Thomas J Stanley Ph.D. and William D. Danko Ph.D. concluded that parents who give substantial economic gifts of "kindness" were actually harming the child's financial well-being. In their study the authors found that "The more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more". Their research concludes that this "Economic Outpatient Care" financially weakens the child and that child typically lacks initiative as an adult. The lesson learned from Dr. Stanley and Dr. Danko's research suggests that parents should not give their children fish, but rather teach them to fish. In the 2020 T. Rowe Price study on kids and money, only 6% of kids had some type of investment account. Less than half of the respondents say they always or frequently discuss setting longterm financial goals with their children. If your children are not getting a positive and clear message about money from you, who will they learn financial lessons from? Possibly the constant barrage of messages from TV and social media platforms will mold their behaviors to consume today and pay tomorrow, all with a low-low monthly payment! Encourage and teach by example. In Robert Kiyosaki's book "Rich Dad Poor Dad" the author offers personal lessons learned from his "Rich Dad" who was actually a childhood friend's father who had taken the author under his tutelage to teach him about money and how wealth is created. Kiyoski's "Rich Dad" advocates for financial literacy and reminds us that "Intelligence solves problems and produces money. Money without financial intelligence is money soon gone." By teaching your children how to manage and be smart with their money, you are helping them prepare for a financially fit adulthood. Children are sponges that absorb more than one can imagine. Encouraging good financial behavior early in the child's life and leading with example will help ensure that the child will make good financial decisions later in life and develop into a financially mature adult apple tree.

Adam Smit is a CERTIFIED FINANCIAL PLANNERTM. His practice emphasizes an investment philosophy of investing in quality while holding for the long-term. Securities offered through LPL Financial. Member FINRA/SIPC.

1 – T.Rowe Price 12th Annual Parents, Kids and Money Survey 2 – Stanley, Thomas J., and William D. Danko (1996). The Millionaire Next Door: The Surprising Secrets of America’s Wealth. Atlanta Georgia: Longstreet Press.