Transitions
Grandmother, Mother, and DaughterIT’S THAT TIME OF YEAR. 
A time to be with family and friends. A time to reflect on the year we had and the year to come. It’s the season for celebrations, resolutions, and traditions.

When I think about my own family’s traditions, I think of my mother. Like most daughters, I was too busy in my 20s to think about anything other than starting my life and my career. But when my mother moved to the US from China to be close to my family, she brought our family traditions back into my life. Now, when I see my mother with my children making homemade dumplings for Chinese New Year, it brings back a flood of memories. I see in that moment how much my mother means to my family and how precious it is to preserve our family traditions.

Just as my mother is in charge of our family traditions, so it is for most families according to Dr. Carolyn Friend of Inheriting Wisdom, an advisory group designed to facilitate, guide, and sustain the family legacy, wisdom and wealth throughout generations of families:

“Mothers are usually the holders of culture, the ones most likely to pass down traditions.”

However, one tradition we don’t always think about passing down to our children are values about money and wealth. Sometimes we feel embarrassed to disclose our own financial status or spending practices or we find the topic awkward or too personal. But it’s important to consider what lessons about money you are passing down to your children, especially those with daughters. The reality is that women are:

  • More likely to outlive their spouses, putting them in control of most of the family wealth and finances. A study this year from the Bank of Montreal’s Wealth Institute found that women control 51% of all wealth in the US.
  • Tend to earn less over the course of their careers, sometimes because they are less likely to negotiate for their worth in salary discussions or because they have taken time out of their careers to raise children or care for aging parents.
  • More likely to put themselves at financial risk in order to care for someone they love, whether it is picking up the dinner tab for a friend in need or putting their career on the “back burner” for a spouse’s career.
  • Increasingly becoming their family’s main breadwinner. Forty percent of US families count a woman’s salary as the main source of income.

I recognize these challenges in the families I work with as a financial planner. I have seen, firsthand, the disparity between what our children need to know to have a successful financial life and what they actually get from parents, schools, and our society. That’s why I started hosting regular events called Women’s Circle – to give women a safe place to come together and discuss their concerns about money.

A common theme from these events is that most of us had to learn about money on our own. The lucky ones seek out this knowledge while others have to learn it quickly after a divorce or the death of a loved one. We hear it all the time: “I wish this was covered in school” or “I wish I had more great female role models to learn from about money.”

Then, as we send our children off to college, are they really ready to handle their finances? If we pay for everything they need and want throughout their young adulthood, are we giving them a good start in life or are we making them dependent on us? The default message from society is to consume and borrow for our immediate gratification. But as a parent, you have a great amount of influence on your child, regardless of their age. It can be a very subtle influence, but these lessons run deep.

So, how can you pass down the tradition of financial wisdom? After all, it takes a long time and a lot of experience to learn these skills. Today we see children enter adulthood more slowly;many don’t gain financial independence until their mid-twenties or even thirties.

It is when they are in this process of becoming independent that your support can help or hinder. I recently had a conversation with a client who wanted to help her daughter buy a new car when the daughter moved to a new city. Both parent and child were worried about dependency. Rather than just buying a car outright, we involved the daughter in the conversation and discussed her options. Ultimately it was decided that the best way to help her was to offer a low-interest private loan so she could buy a car and make payments to her parents that made sense for her. In this way, her parents could help her without enabling her, and she could feel independent, learn about debt, and gain the discipline of paying back a loan.

Like any good family tradition, creating lasting money traditions starts with having regular conversations. Dr. Friend of Inheriting Wisdom recommends combining good rules about money, an activity that can illustrate these lessons, and annually revisiting the conversation to check in and learn. Dr. Friend shared that she opened IRA accounts for both her daughters:

“I wanted my daughters to be more independent than I was at their age so I started them with IRAs that I would annually add to. But they were in charge of it. Every year I would ask them where they were going to invest it and how it was doing. So when my daughter started her first job she went into the 401K right away because she had the experience and saw the benefit.”

Based on my experience teaching “Finance 101” to teenagers and young adults, here are some more tips for passing down lasting money wisdom to your children:

  • Start young with practical skills like budgeting, credit cards, and bank accounts. When your child sees you use your credit card, explain how you manage your purchases, and how you pay off the card.
  • Share stories about how you learned to manage your money. Don’t be afraid to share mistakes you made. I have one client that uses big holiday dinners as an opportunity to compare and contrast how far he and his wife have come. The children love the story of their young parents trying to celebrate the season by building a Christmas tree out of boxes and eating spaghetti and meatballs with friends who, like them, couldn’t afford to go home for the holidays. But more importantly they learn that money doesn’t buy happiness and that wealth is built through hard work and perseverance.
  • Talk about education as an investment. If your child says: “I want to be a musician,” you can have the conversation about the investment in education (tuition) and the returns on that investment (salary). It can become a yearly conversation.
  • Create a shared experience like an investment account, participating in charitable donations, or inviting your young adult to talk with financial professional. These activities will make the child feel like she has a seat at the table. She will be proud to be treated like an adult.
  • Share stories from your life, or your parent’s lives, or your grandparent’s lives, that show family values about money, gifting, and inheritance.

I would love to hear about any “wise money traditions” you create or have with your children. Most of all, I wish you and your families the happiest of holidays and the most wonderful new year. If you would like to continue this conversation, join our next Women’s Circle and Women’s Conversation Café in 2016. For more information, contact Linda Cao at lcao@silveroakwa.com or call 310.207.4800.


Linda Cao

 

Linda Cao, CFP®, is a Wealth Advisor at Silver Oak. She specializes in working with women-in-transition and in long life planning.