Talking About Money: How to Prepare Your Family for Success

As we enter the greatest wealth transfer in modern history, it’s important for parents to talk to their children in young adulthood about personal finance and responsibility.

According to Cerulli Associates, a research and consulting firm, nearly 45 million U.S. households will hand over $68.4 trillion to their heirs and charities over the next 25 yearsⁱ. Roughly 57% of the total assets will go to Generation Xers, and the rest will be split between the younger generations.

For today’s young adults ages 18 to 25, the oldest members of Gen Z, this wealth transfer is happening as they start their professional careers. Either in college or recently graduated, this cohort is making decisions that can have a major impact on the trajectory of their lives: choosing a major, taking out student loans, accepting a job offer, etc.

By discussing money with your children at this stage, you can help them make good decisions and set them up for financial success in the future. But there are a few things to keep in mind when preparing to pass down your hard-earned wisdom and practical advice.

Why is it important to talk to your adult children and family about money?

Teaching people in young adulthood the fundamentals of personal finance will equip them to make sound decisions and accumulate wealth—regardless of the life paths they choose.

The 2022 Investopedia Financial Literacy Survey found that Gen Z and millennials feel they need to learn more personal finance basicsⁱⁱ. Gen Z said they are the least educated in taxes, borrowing, insurance, and retirement. Although millennials felt more informed about saving and investing, they want to know more about improving their credit scores.

When asked what financial skills are most important for them to learn today, the most common answers among each generation reflected their respective stage in life:

• Gen Z wants to learn how to do taxes (34%).
• Millennials want to build or improve credit scores (31%).
• Gen X wants to save for retirement (30%).
• Baby boomers want to make sure their financial information is safe online (32%).

Even if your children do not display an interest or aptitude for finance, financial literacy will serve them well throughout their lives.

What’s the main goal when talking to your children about money?

Although 83% of parents think they are responsible for teaching their children about finance, 31% “never” talk to their children about household finances, according to a recent CNBC/Momentive poll.ⁱⁱⁱ

The primary objective in talking to your children about finance is to pass on everything you wish you had known when you were younger—from basic financial literacy to acquiring and maintaining wealth.

Think about what you would’ve wanted to have known when you were your child’s age. What presentation of ideas would’ve made you more receptive to what your parents could’ve told you at that time in your life? You can share your personal successes and what's worked for you, so they start with a solid foundation of knowledge to make informed decisions.

What do young people need to know about personal finance?

You can teach your children about money at virtually any age. The lessons just need to be appropriate to where they are in life. High school students, college students, and recent graduates can benefit greatly from having someone show them the way.

1. Borrowing

It’s important to teach your young adult children the difference between good debt and bad debt. When handled correctly, a home mortgage loan or a student loan can be good debt that helps to build wealth over time. But borrowing money to buy an expensive vehicle, which will only depreciate over time, would be bad debt.^iv

You can teach teenagers and young adults that taking on debt can sometimes be the most responsible decision—even if it takes a long time to pay it off. When you purchase a home, you are getting not only a place to stay but also a property that will likely appreciate in value. When you invest in a quality education that prepares you for the workforce, you can enjoy the actual learning in the short term and job security in the long term.

2. Insurance

The basic structure of insurance policies can be complex for teenagers and younger adults to understand. They might think, “If nothing went wrong, why did I still have to pay so much money?”

But that doesn’t mean young adults shouldn’t learn the basics. Insurance can be used to protect against high costs that could ruin someone’s financial well-being. Taking out insurance that’s appropriate for one’s risk tolerance and lifestyle can help to cover losses, protect assets, and safeguard a family’s future.

Young people do not need to understand the entire landscape of the insurance industry, but they should know how to obtain coverage that is right for them.

3. Saving

When your son or daughter reaches young adulthood, you may see whether they internalized some of the lessons you taught them early on. Regarding saving, this could have involved performing chores for allowance or keeping a piggy bank.

Just because your child is now an adult doesn’t mean the lessons should stop. In fact, now is a good time for them to learn not only basic principles around the importance of saving, but also down-to-earth, practical steps of saving money.

What percentage of one’s paycheck should go into a savings account? What is a 401(k) and how does one maximize its benefits? How can a young adult even think about saving money when prices keep rising? That last question is especially concerning for young people today.

4. Credit

It’s important for young adults to understand how credit cards work and that lenders turn a profit through fees and interest. Let them know that a good credit score could one day affect their chances of getting the home, car, or job that they want.

Then teach them habits for creating a good credit score, which would include spending beneath their means and paying bills in full and on time each month. It’s common for college freshmen, often making all their dietary decisions for the first time, to take in too many calories. In the same way, young adults using credit for the first time may spend beyond their means and rack up charges. It’s important to emphasize restraint. Just because something can be acquired with credit doesn’t mean it should.

5. Building Wealth

Young adults can see wealth building as a way to reach the future they want. Building wealth isn’t about “hoarding” money; it’s about achieving financial freedom and having more options in life.

Although you should teach your kids responsible habits and general principles when they are younger, as they get older, explain the specifics about personal finance. Each new stage of life warrants more sophisticated talks about money.

Encouraging entrepreneurship and explaining how value is created will serve young adults well. But it’s also important to demonstrate the importance of having a long view of the future. How will the actions I take today—financial and otherwise—impact my life 10 or 20 years from now? Will these actions give me more options and make my life easier? Or will they limit my options and make my life more difficult?

What aspects of wealth are the most important to talk to your family about?

If your adult children will be inheriting wealth, talk to them about the principles you followed to acquire and maintain that wealth. With the help of a trusted financial consultant, you can establish a comprehensive wealth plan that outlines the proper ways for your children to manage the assets they will inherit.

Beyond the details of how you specifically generated wealth, think of the broader principles that guided your actions. Share your general views on investment strategies that spell success or failure.

It’s important to speak candidly about wealth with your loved ones to build a strong foundation of financial literacy. But in the end, these conversations aren’t really about money. They are about helping your children and grandchildren lead responsible and fulfilling lives. Doing whatever you can to make sure their finances are in order is an important step in helping them to live the life they want.

Need help managing these discussions? Ask for a meeting with a Financial Consultant at Santander Investment Services to help navigate financial planning for the next generation.