If you worry whether your kids will fall into the future ranks of "haves" or "have-nots," consider your own financial behavior in a more imperative duality: Are you a "doer" or a "dreamer"?
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As college tuition and student loan debt continue to soar and job growth for graduates looks sluggish in many fields, the guidance parents give their kids matters more than ever, according to a new investor survey by TD Ameritrade.
Sampling more than 1,500 adults ages 22 to 81, the survey defines doers as financially responsible across the board. For starters, they have retirement accounts, follow a budget and pay off credit cards quickly. Also crucial: 74% of doers reported that that their parents showed them how to save and prepare for the future, compared to 64% of dreamers.
"Parents have a tremendous influence on how financially responsible their children become," says Carrie Braxdale, managing director of investment services for TD Ameritrade. The parents who are doers "have conversations with their children about money, the importance of saving money and putting it aside," Braxdale says. "And parents actually model that good financial behavior. They lead by example and their actions."
The survey also shows that 83% of doers have a retirement account, compared to 39% of dreamers. "That's pretty dramatic," Braxdale adds. "You show them the value of these actions, and then lead the way."
So "doers" have a way of raising kids who will follow suit: Parental example overall has "a significant influence on respondents' money-management skills as adults," the survey concludes. Parents seen as "doers" who encouraged their children to invest and save more "are more likely to become 'doers' as adults rather than 'dreamers."'
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When kids hear positive and clear messages about money from parents, then the belief and the guidance they have is accurate as opposed to their making childlike observations where they reach mistaken conclusions, says Susan Zimmerman, who operates Mindful Asset Planning with her husband in Apple Valley, Minnesota.
Zimmerman is a rare blend as a financial consultant because she's also a licensed marriage and family therapist, and knows the dynamics that shape a child's behavior with money. For parents wondering how to pass on financial wisdom, Zimmerman says it starts with the ABCs: "A is for allowance, where a child earns a certain amount for doing a job. B is for balance, where you tell kids that you don't want to spend all of your money right away because there are things you want to save for. And C is for charity or contributions to causes the family cares about."
The most important thing parents can do to teach their kids about money is not only to lead by example, but share what they're doing, Zimmerman says. Her advice? Ask kids where they think money comes from the next time you visit the ATM. "Of course the kids don't get it," she says. "It's not an endless money machine, and that's the start of a great conversation you can have with your kids."
That practice-what-your-preach mentality on living within your means is at the heart of Money Savvy Generation, a Chicago-area company that develops products to teach basic personal finance skills to school-age children. Founder Susan Beacham practices what she preaches with her daughters, Allison, 20, and Amanda, 17.
Allison is a sophomore at Miami University of Ohio and since she was 8, her parents replaced her standard piggy bank with what Beacham calls a "Money Savvy Pig" - a special bank she developed that has four slots instead of one. The slots correspond to "save," "spend," "donate" and "invest," helping kids grasp the abstract nature of cash allocation in a concrete way.
Before Allison started college, she sat down with her parents and created a spending plan. "We do this each August and she lives within her budget all year," Beacham says. When her daughter considered moving into a student apartment, the budget played a role in getting her to reconsider. "One of the big mistakes kids make is to move into in an apartment, when it costs twice as much. She has skin in the game."
That's also a lesson that Bob Stammers, head of investor education for the CFA Institute, a global nonprofit of investment professionals from more than 100 countries, imparts to his family. "The number one thing you can teach the college-age segment and below is about savings. It's a value they'll have the rest of their lives," Stammers says.
That subject came up during Thanksgiving break, when Stammers had a talk with his 21-year-old daughter Danielle, who studies journalism at the University of Georgia. The two discussed everything from her general finances to her plans for retirement.
"She needs to become a disciplined saver," Stammers notes. He's taking responsibility as opposed to pointing the paternal finger. "Eventually we need to get her more information on how to employ and invest her savings. I've convinced her that if she becomes a disciplined saver and can postpone some current spending, she shouldn't have to worry about money later in life."
Indeed, delayed gratification gets to the heart of what separates doers from dreamers. Braxdale offers: "If there's something your child wants, that's a great opportunity to say, 'Okay, this is how much it costs, this is how you can get that money, and here's how you can reach your goals."