11 Apr

Do Your Children Understand Money?


"From shirtsleeves to shirtsleeves in three generations" is an old proverb attributed to Andrew Carnegie. It refers to the typical cycle of wealth in a family; created by the first generation, enjoyed by the second generation and lost by the third generation.

For wealthy families, preserving that wealth for generations to come is often heavy on their minds.

In Morgan Housel’s book, ‘The Psychology of Money’ Housel offers a unique look into a letter he wrote for his son when he was born.

In the letter, Housel writes “You might think you want an expensive car, a fancy watch and a huge house.  But I’m telling you, you don’t.  What you want is respect and admiration from other people and you think having expensive stuff will bring it.  It almost never does – especially from the people you want to respect and admire you.”

The beauty of this passage is not about the exact lesson—having expensive stuff versus having respect and admiration. The beauty of this passage is that Housel deliberately wrote his thoughts on money, life, respect and experiences to his son. Housel decided on the specific legacy he wants to leave his son.

The beauty is in the intentionality of thought and advice.

For those that are hoping to impart wisdom to the next generation and avoid their legacy going, “from shirtsleeves to shirtsleeves” in three generations, here are some tips to consider.

Start early and often

Leaving behind a legacy of financial stewardship and appreciation can start at an early age.  For younger kids, start with open conversations around money – what you can buy with money, how much certain things cost and even how you earn money by working or investing.  Kids will begin to pick up on the different aspects of money at a young age, so be sure to model the behaviour you are hoping to pass on.

Allow your children the space to fail

One of the best ways to teach children how to manage money effectively is to let them try – and sometimes fail.  Many families choose to do this by offering an allowance to their children.  While many parents tie their child’s allowance to chores, some financial professionals advise separating the two.  Separating money and chores can help avoid money being used as a punishment, leading to possible money issues down the road.

An allowance gives your children the ability to start practicing money management; balancing the desire to spend it all versus save some for the future.  It will also allow them opportunities to feel the excitement over items they have purchased, as well as the regret.

One of the goals here is to take a step back and see what your child naturally does with their money.  Some will spend it all, while others will be naturally wired to save.  As you observe your children, it will help you understand where you can nudge them to help round out their money behaviours.

Over time, this ‘money practice’ can grow into larger savings goals, additional income potential with unique projects around the house and even into long term saving strategies.

Allowing them the space to try and fail is one of the most potent gifts parents can do for your children.   After all, these mistakes aren’t failures, they’re learning life experiences.

Communicate openly about your intentions

Money is one of the last taboos.  This can cause many families to avoid the conversation of money and wealth altogether, leading to confusion and misunderstood ideals.

Families can avoid the ‘shirtsleeves to shirtsleeves ‘ outcome by communicating openly about their intentions and desires with money.  Teach them what is important to you and the lessons you have learned.  Explain about times you have made mistakes and what you would do differently.

Even if your children seem uninterested in your words, there are still points that will stick with them.

Often, children who receive an inheritance or financial gift are unsure of what their parents want them to do and seek additional insight and guidance.  For some parents, this can be as simple as letting their children know that they are giving them a gift to do whatever they want with – and for others, they may have a specific idea of what the gift should be used for.

Lead by example

Regardless of your age or your children’s age, do some level of charitable work together.  I cannot stress this enough. If you really do want your children to be good at looking for opportunities to lift and help.  If you want them to be capable helping out someone in need, show them how.

I promise if you find a unique opportunity to lift and help someone, and get your family involved, it will turn into one of the best stories you have and one of the most lasting memories your children foster.

As a parent, this may seem a huge task!  Stick with it, it will be worth it in the end when you see your children set up for life because of what you have taught them.

Would you like to discover strategies to become financially healthy?  If you are serious about money, drop me an email or click on this link to find a day and time that suits you to have a chat with me – it’s completely free.


This blog has been based on an article by Joe Griffin, CEO TrueNorth Wealth