Talking to children about finances can be a stressful and somewhat taboo topic, particularly during times of economic turmoil. At First Command, we are seeking to help parents open the lines of communication by sharing advice that our Financial Advisors deem most important for fostering financial literacy and responsibility in their own children.

We recently commissioned a survey of our advisors by Sentient Decision Science, LLC, a full-service research firm that also produces our First Command Financial Behaviors Index™. More than 340 First Command Financial Advisors participated in the initiative, offering the various approaches they take when discussing money with their minor and adult offspring. By highlighting the topics and advice they share with their own children, our advisors are providing encouragement and support to all parents looking for help in teaching their kids about money.

When asked what single, best piece of advice they would give parents who want to teach their children about financial issues, our advisors mentioned:

• Be a good financial role model for your children (i.e. lead by example)   —  27%
• Start teaching your children about finances at an early age   —  19%
• Have children take some responsibility for managing their own finances  —  15%
• Discuss financial issues openly and honestly with your children  —  12%
• Do not be a “safety net” for your children (i.e. do not bail them out of debt, pay for their purchases, etc.)  —  6%

Advisors also think that parents should emphasize several financial myths as being not true, including:

• “I need to make more money before I can start saving.”
• “I’m too broke to invest.”
• “I shouldn’t deprive myself now by locking my money for decades in retirement savings.”

Our Financial Advisors think that spending without a budget is one of the most important issues plaguing children today. Sixty percent of advisors with children think that this is one of the major financial pitfalls children are susceptible to in the future, and the majority think that spending without a budget is the greatest financial mistake made by both teenagers (72 percent) and children in college or university (78 percent). As a result, 41 percent of Financial Advisors talk to their children about spending on a budget at least monthly, with 11 percent talking about this issue at least a few times a week.

When advisors with children were asked to identify the single best piece of advice for children, 34 percent mentioned that children should learn not to live beyond their means. Furthermore, 88 percent of all advisors think that learning not to live beyond their means is the best financial advice for both children in college or university and for teenagers.

Advisors are also concerned about debt among college-age and teenage children. Seventy-six percent of advisors said that acquiring credit card debt is the worst financial mistake made by children in college or university and 60 percent identified overall debt as the worst financial mistake.

One recurring theme in the study is the importance of having an honest and open dialogue. Seven out of ten First Command Financial Advisors use their own personal financial mistakes – and mistakes made by others – to educate their children. That’s a smart approach. Being honest about your own financial experiences is a great way to help your children deal with some of the anxiety they may be feeling in today’s uncertain economy and prepare them for a financially responsible tomorrow.

If you’d like to learn more about the results of our survey, please check out our slide presentation or talk to your First Command Financial Advisor. We’re ready to help.

First Command Financial Services, Inc. is the parent company of First Command Financial Planning, Inc. (Member SIPC, FINRA) and First Command Bank (Member FDIC). Financial planning services and investment products, including securities products are offered by First Command Financial Planning, Inc. Insurance products and services are offered by First Command Financial Services, Inc.  Banking products and services are offered by First Command Bank. Securities products are not FDIC insured, have no bank guarantee and may lose value.  In certain states, First Command Financial Services, Inc. is a separately registered domestic corporation and does business in California as “First Command Insurance Services.” A financial plan, by itself, cannot assure that retirement or other financial goals will be met. Sentient Decision Science, LLC, was commissioned by First Command to conduct the survey of Financial Advisors and compile the Financial Behaviors Index™.

TEACHING TIPS: A LESSON PLAN FOR PARENTS

It’s never too early to begin teaching children about money. What they learn about working, saving and spending can stay with them for a lifetime. But marketers of toys, games, clothing and food know this, too — and seem intent on turning children into consumers at increasingly earlier ages. So how do we teach children financial responsibility when the consumer culture encourages them to spend, spend, spend?

GETTING STARTED
Start young, as it’s much easier to develop a good habit than to break a bad one. Plan on spending both time and patience, and encourage your children’s involvement in the financial decisions that affect them.

Having an allowance and the ability to control that money is a good way for children to learn. But don’t just hand your child money and forget about it — attach responsibility to it. Some parents provide their children an allowance but also provide the opportunity to earn extra money by doing appropriate chores around the house. This creates a link between work and money in a child’s mind.

TEACHING THE CONCEPTS
A time-tested principle for financial well-being at any age is to “pay yourself first” — putting a specific sum or percentage of money into savings and investments before budgeting the rest to necessary expenses and discretionary spending. Teaching children this principle takes commitment, time and patience, but it’s important for their lifelong financial well-being. Here are some tips:

• Offer to match the amount the child saves.
• Take your child with you to open a savings account.
• Don’t always refuse when a child wants to withdraw money for a specific purpose, as this may discourage saving.
• Provide an allowance in denominations that encourage saving. For example, divide a $10 allowance into a $5 bill and five $1 bills, with the encouragement to put one or more dollars into savings before spending the remainder.

For teenagers and college students, First Command Bank offers a couple of starter financial tools designed to keep the parent involved so they can foster good financial habits.

• Encourage a conservative, disciplined approach toward the use of credit with First Command Bank’s Classic Visa card. This product is ideal for students and other first-time cardholders who want to build a solid credit history through responsible credit use.
• Introduce your teenager to basic financial management with First Command Bank’s First Account,  a checking account designed for 14- to 22-year-olds. Parents can use the First Account to teach everyday financial management — for example, by depositing a child's allowance on a regular schedule and encouraging prudent budgeting and spending until the next "payday."

LET THEM MAKE MISTAKES
One of the most difficult lessons for parents is letting their children make mistakes. It’s difficult to watch a child experience “buyer’s remorse” or realize that by spending an entire allowance early in the week or month, there’s no money left later. However, allowing mistakes will also allow a child to learn from them.

TRANSITIONING TO INVESTMENTS
Once a child has established the habit of saving, you may want to introduce the idea of investing for the long term. Open a mutual fund account that’s funded entirely with your child’s money. Consider starting an automatic bank draft on the child’s own bank account and matching his or her deposits with your own. And use the periodic fund statements to teach about dividends, fluctuations in value, and the power of compounding.

Remember, though, to carefully review the prospectus for a particular mutual fund investment before purchase, as the prospectus contains important information on costs and risks. Be aware, also, that investment return and principal values will fluctuate over time so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

A financial plan, by itself, cannot assure that retirement or other financial goals will be met.