June 5, 2018

Give your children money, and they'll usually find a way to spend it. Teach them how money really works, and they can change the world. 

This modern-day take on an ancient proverb is not the lesson that most young people are taught. Despite increased focus on training for a competitive global economy, an essential ingredient our kids need to succeed is often left to chance: financial responsibility. 

$59 trillion will transition from older generations to Generation X and millennials over the next 30 years. Thanks to the convergence of societal trends—including higher educational attainment rates, greater earning power of women, and longer lives—Generation X and millennials will have more influence and control over greater amounts of wealth than any generation before. The growing number of inheritors making more financial decisions of all kinds will have a compounding impact on what they do with the increased financial assets they will earn, own and control. 

Yet there’s a huge problem at the crux of this transition: young people still aren’t taught about money and investing, and this knowledge gap puts many of them at a distinct disadvantage when they get into the driver’s seat for significant financial decisions. 

This is exactly why the recent research by the Women’s Philanthropy Institute1 (WPI) about the generational transmission of philanthropy, especially between parents and daughters, is a wake-up call and offers a new way to think about kids and money.

The research found that when parents practiced charitable giving, their children as adults were significantly more likely to give themselves. This relationship is especially significant for daughters, who are even more likely to follow in their parents’ footsteps when it comes to philanthropy. Giving habits formed early in life stuck with these young people, long after they had left their parents’ homes. They kept giving, and they kept giving more.

WPI’s research suggests that parents can use charitable giving as a means of creating a dialogue about money with their children, and that dialogue can be an effective way to teach other money skills as well, such as spending, saving, and investing. If giving habits can be learned from family members then why not other money lessons? Financial literacy + generosity = good results.

"If giving habits can be learned from family members then why not other money lessons? Financial literacy + generosity = good results." 

If this powerful triumvirate—money, investing, and philanthropy—can be harnessed as a means of engaging our children to be bold economic leaders, future generations will be better prepared to use their considerable financial influence to create the lives they want to have in the world they want to inhabit, through a strategic combination of conscious spending, wise investing, and philanthropy. The long-term impact on families and society can be huge. 

All the top philanthropists with whom I have worked have supported these findings. They have told me that they learned a crucial lesson from their parents: that having sound financial skills goes hand-in-hand with achieving significant philanthropic impact. These influential citizens were fortunate to have parents who served as financial and philanthropic mentors, and were as such well-positioned to make big financial decisions once they took over the reins.

My experience working with affluent young people has revealed that they don’t lack interest in making good financial decisions; they know that money is key to their progress. Contrary to those who characterize the next generation as undisciplined and without focus, I’ve found these young people inspiring and passionate. They intuitively want to use their financial resources to advance the concerns they care about, whether that is their family, career, community, or a larger societal issue.

The challenge however is that many young people experience a disconnect between the concept of having a worthy goal and the knowledge of how to take the financial steps necessary to make a dream a reality. This can partly be attributed to our educational system’s failure to teach money skills. Financial education falls squarely on the shoulders of parents, and it’s a hard job to do. 

As parents, most of us want our kids to have “better” lives than we’ve had. “Better” is often translated to “more” and the “more” we give our kids, the less likely it is that they develop the financial skills needed to build and grow wealth to achieve financial security. Our admirable desire to “give them the best of everything” can encourage excessive dependency and a lack of purpose. Ironically, this tendency can create an unfortunate blind spot for them. Without the financial skills to understand how the whole system works—both its potential risks, and its rewards—young people may not adequately understand their true financial picture. Unless we take clear and tangible actions to teach them to link spending, saving and investing to reach specific financial goals, they may put their own financial security at risk, or their big plans on permanent hold. 

So, it’s not surprising to me that when our kids DO receive training, encouragement, and opportunity, they respond with interest and follow through on that interest with effective actions. The next generation will be better prepared and highly motivated to act if we continue to mentor them. Clifford Swan Investment Counselors can be a resource for you and your family for financial education.

"So, it’s not surprising to me that when our kids DO receive training, encouragement, and opportunity, they respond with interest and follow through on that interest with effective actions."

WPI’s findings, therefore, offer a compelling path forward. Encouraging our children to embrace the power of money will enable them to enjoy the majesty of it, and create the change they want to see in the world. Teaching family values isn’t out of style; it’s needed now more than ever. 

This article was adapted from “Women’s Rising Power: More Money Means More Giving,” published by Thrive Global on May 17, 2018. 

1. Mesch, Debra, et al. Women Give 2018: Transmitting Generosity to Daughters and SonsWomen’s Philanthropy Institute, Indiana University Lilly Family School of Philanthropy, 2018.

Download Article: Call to Action: Let's Talk to Our Kids About Money

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