Chris Remedios regularly gives advice on saving and managing money to her two kids. What is sometimes her most rapt audience?
"I think that being their mother means that, occasionally, (my children) ignore that conversation. I've had some great discussions with their peers, though," said Remedios, a fee-only, hourly financial planner based in San Francisco. "A number of them have really picked up on the discussions about budgeting and saving."
But Remedios' children, Michael, 23, and Augustina, 20, have implemented a number of her suggestions. With her help as soon as they started earning money, each invested in a Roth IRA account, she said. "It gets the habit of saving for the long term started early. But the beauty of a Roth IRA is that you can actually take out your contributions without a penalty," Remedios said. While that's not encouraged, knowing you can withdraw your contributions for the shorter term when you're 17 years of age, instead of waiting until at least 65, is an ideal incentive, she said.
"It allows young people to say: 'I'm willing to accept the volatility of the market and if that money grows over time, I benefit," said Remedios, principal at Remedios Financial Planning in San Francisco, in partnership with her son.
But a number from Generation Y, also known as millennials born in the 1980s and ’90s, aren't as keenly attuned. "The young lack financial acumen and aren't financially literate. This is very worrisome," said Annamaria Lusardi, academic director of the Global Financial Literacy Excellence Center and Denit Trust Chair of Economics and Accountancy at the George Washington University School of Business.
According to a report she co authored, Gen Y Personal Finances: A Crisis of Confidence and Capability, financial literacy can't be taken for granted, even among highly educated individuals. The analysis reveals a striking lack of financial literacy, including among millennials with high levels of education and income. That leaves the largest generation in U.S. history poorly equipped to deal with assets and debt, the report continued.
While millennials give themselves high marks in their ability to make day-to-day and long-term financial decisions, there are clear signs of overconfidence, the report said. Even though millennials make many decisions related to investments and debt, most of them lack financial literacy and are unaware of their lack of financial knowledge. On top of that, professional financial advice is used sparingly by millennials, many of whom lack trust in financial professionals and think that professional financial advice is too expensive for them.
Darrah Brustein, author of "Money-Making Sunny: Finance Whiz Kids," trusted her parents. She said her mother, an entrepreneur, and her father, a financial services executive, were "intentional and diligent about teaching us financial values at an early age. It worked for me and my siblings."
Brustein believes that habits are formed in early developmental stages of childhood. Studies show that children begin to learn about money and form their relationships to it as early as age 3, she noted. "This solidifies my belief that the earlier there is intentional teaching about money and responsibility, the more likely a child is to have a solid foundation on which to build as they grow."
According to a Harris poll, fielded on behalf of the National Endowment for Financial Education last year, 84 percent of U.S. adults who are parents of kids under the age of 18 have talked to them about money, while 16 percent never have. Fifty-six percent said it was the children who asked them a money-related question, while a quarter said that they first brought up the subject of money to their children.
Emilie Goldman's been discussing financial concepts — including budgeting, spending and saving — with her two children since they were around 4 or 5 based on their ability to understand at the time. Her oldest is now 16. "I think the key is getting them comfortable with their own budgeting; that's the core of most financial decisions and understanding whether you can really afford something, how much you need to save and how long you need to wait. It's the same conversation I have with my clients, at any age," said Goldman, a financial adviser with San Mateo California-based Tamarind Financial Planning.
Goldman recently raised the allowance of her older daughter, Julie, gradually granting her more control of her purchases. Goldman also helped her daughter open checking and savings accounts. Her daughter also had salted enough away from summer jobs to establish a brokerage account, and Goldman helped her daughter select a mutual fund. "I think she's still trying to figure out what that is," Goldman chuckled. "But the market's been going up since she bought it and she knows what she put in. Now it's growing without her doing anything, so that's cool to experience, and understand that, 'my money could actually work for me.'"
Among those who are parents of children under 18, 68 percent say their children are old enough to make at least some spending decisions, reported Harris. Among them, 84 percent feel frustrated over their children’s spending decisions. Thirty-three percent said their main frustration is that they are wasting money.
Goldman looks for ways to allow her daughter to do more. "I think most of her friends don't even have a bank account. My 12-year-old has a bank account and debit card and she says, 'Mom, I'm too young to have a debit card; I'm not responsible enough. Why are you making me do this?'"
Lack of responsibility — or a flat-out disinterest in finances, or much of anything — was an issue for the 20-year-old son of Mary Ballin, certified financial planner and client adviser with Mosaic Financial Planners in Walnut Creek, California. "He's been very hard to motivate his entire life."
Although extremely bright with a high IQ, her son is currently attending junior college because "he never got very serious" about his education and grades in high school, explained Ballin. When he graduated from high school, he didn't have the option to attend a four-year college program, so Ballin and her husband told him that he could attend junior college and work part-time for his "fun" money, work full time and pay rent to live at home, or move out "and figure it out for himself."
Ballin called it "one of the hardest conversations I’ve ever had to give. I'm definitely not the mother who thought she’d be telling her child they are going to be kicked out of the house to the street.”
While his grades his freshman year failed to hit levels set by his parents, things worked out better his sophomore year, Ballin noted. “Perhaps maturity is kicking in with him or he’s realizing that his friends are all moving on with their lives and he is being left behind still living with the same rules, such as curfews, that he had in high school; 'my house/my rules' — and that’s not 'cool.’”
Their daughter, on the other hand, started working during the summers after eighth grade, sacrificing her spring break to get trained, Ballin said. "She's gotten the taste of having money and puts the majority of her money in savings because she wants to buy a car when she turns 16 next year."
It's difficult having a child who isn’t motivated and hasn’t made it easy to teach these lessons to, Ballin said. "I try to live what I preach to my clients, but sometimes, it's not as easy. Having two children who are polar opposite in terms of motivation and money matters has taught me that all we can do is educate — walk the talk as the parents — and hope that the lessons stick and are maintained."
Chuck Green is a writer living in Atlanta. His work has appeared in the Chicago Tribune, Los Angles Times, WallStreetJournal.com and BloombergBusinessWeek custom publications.