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The Kids Stay in the Picture

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As increasing number of planners adopt a holistic approach to their clients’ money matters, many are taking a closer look at the relationship they have with clients’ children. “With every client that comes in–in the interviewing stage–we talk about what financial planning is and then we tell the client there are a lot of things that aren’t normally considered financial planning, including how to teach your children proper values and responsibility as it relates to money,” explains Charles Foster of Blankinship & Foster, a family wealth advisory firm in Del Mar, California. “And all of a sudden, parents, and even grandparents, really perk up,” he adds.

Parents want their children to be self sufficient and financially literate, but many are unsure of how to achieve these goals and may look to an advisor or education program (see Cash Camps for Kids sidebar) to help them raise financially fit kids. For advisors, it’s a great way to offer value to your current clients and build a relationship with the next generation.

Some advisors are surprised when the children of their recently deceased clients place the inheritance with another advisor. Many times, this happens because the younger generation does not have a trusted relationship with their parent’s advisor.

Get ‘Em While They’re Young

Foster believes advisors should begin discussing their clients’ children’s money education at an early age. Parents usually think or ask about it way too late. “I’ve had clients come into the office with a child around 16 or 17, who is going to college in a year or two and has never had any responsibility or any opportunity to show any responsibility with money,” he laments. “And that’s a crime. A child should at least be able to make good decisions about money before 10 years old.”

Unfortunately, according to a report conducted by StrategyOne on behalf of Charles Schwab and the Boys & Girls Clubs of America earlier this year, that isn’t the case in most households. The online survey, which polled 1,000 American teens, found that nearly two-thirds (62%) of them believe they’re prepared to handle adult financial responsibilities after high school, yet other parts of the survey don’t back up that belief. Just 41% consider themselves knowledgeable about budgeting, 34% know the procedure of paying bills, and only 26% understand how credit card interest and fees work–the most startling of the three, since these kids will be attacked by credit card companies the minute they walk onto a college campus in a couple of years.

The Early Stages–Assisting The Parent

For elementary school-age children, it may be helpful to offer parents tips about allowances, as well as bank and investment accounts. Point out the advantages of starting to invest and save early. “After age four or five is the perfect time for parents to provide an allowance from which the child gets to make some of his own decisions,” Foster suggests. “The parent should use trips to the grocery store as a chance to teach the child. If the child has money to use, they can participate in the spending process.”

After children learn how to use their allowance to spend, the next step is money management. Psychotherapist and money coach Olivia Mellan suggests that the allowance be distributed among different colored jars: one for spending, one for saving/investing, and one for charitable giving. A fourth can be added for education, as well. This is a way for children to learn and see what their money can do for them. Susan Bradley, financial planner and founder of the Sudden Money Institute and creator of Money Camps, Inc agrees. “Children should have four choices with money: saving, spending, investing, and sharing, and parents should have conversations with kids about the four choices,” she says. “It helps families convey value systems and helps kids understand that money is not just for spending. Children learn they can get whatever they want, but it takes time and discipline.”

Mellan also suggests that parents keep children and young adults aware of the family financial situation so they can learn from their parents’ actions. Encourage clients to talk through large purchases with their spouse or another family member within earshot of the child. Remind clients that while kids may not be picking up their messy rooms, they are picking up parents’ money messages. “Parents can teach kids to be good consumers,” says Bradley. “And parents solidify their own skills while doing this as well.” Generally speaking, the more a parent talks to their kids, the better; and the planner can help facilitate the process.

The Middle Years

Advisors seem to agree that around junior high school-age is the point where investing comes in. “We encourage every client to set aside a little bit of money–typically in a custodial account that will become the child’s when they turn 21,” says Foster. “The child can have anywhere from $1,000 to $5,000 [in the account], and the parent tells the child that if they invest it nicely and make money, it’s theirs to keep, and if they invest poorly, it’s okay and they don’t have to replace that money.” Foster usually starts a young adult off with stocks, such as McDonalds, Coca-Cola, or Adidas–something the child has a connection with. “And all of a sudden the child gets excited about going through the annual report,” he says. “It whets the appetite and creates a cubby hole in the brain where the child starts to notice more and more. Disney is our favorite gift stock–you tell a child they own part of Disney and they say ‘wow,’” he adds. Mutual funds designed specifically for kids don’t seem to be used as frequently. Advisors agree that some kiddie funds are helpful in teaching children, but many have expensive fees attached. Foster also stresses that the advisor and parent must inform the child that it’s okay to make a mistake while investing for the first time. Bradley agrees. “The most important thing children must learn is that investments are not perfect and the markets go up and down,” she says. “It’s a teaching opportunity.”

A way for you to connect with clients’ kids before they are ready or old enough to come to your office is by sending a “gift” to them when they enter high school. It can be a tip calculator or a bookmark with money tips on it. You can even email this internet-savvy bunch a link to Web sites that teach them how to save and invest. is a great place to send high school seniors–it offers such tools as a savings calculator, and sends a weekly email with a short tip on how to save money. The Web site also looks to the future and deals with issues, such as buying a car, managing credit card debt, and planning for a family. Contacting the child shows is a sign that you take them seriously. This gives you the twofold advantage of offering them some useful tools, and building you business.

You can also get teens and young adults involved by holding a client appreciation event for the whole family or educational seminars especially for clients’ kids. If you don’t want to create your own program, you can try courses like the AIG SunAmerica Kids Investing for Dollars and Sense (K.I.D.S.) program, created by an advisory council of professional educators. “Advisors can offer the program with the idea being that they have an educational tool. They can go to a teacher, principal, or PTA and offer to make a small presentation and enhance the children’s education free of charge,” explains Betsy Treitler, VP of marketing communications for AIG SunAmerica. The program includes worksheets and Internet-based activities, which parents can review with their children, on topics ranging from comparison shopping and taking financial risks to careers in financial services. It also incorporates an overview of the origins of money, creating a budget, opening checking and savings accounts, credit, stocks, bonds, mutual funds, and techniques of advertising.

The Teen Years–Meeting Your Future Clients

Do something for kids that are going to college too–this is the group that’s closest to being your potential clients. Send parents an invitation to bring their kids in for a conversation about what a 529 account is and how it will impact their life. Talk to them about debt, and how to keep a budget and why it’s important to stick to it. When they graduate with money confidence and without the burden of credit card debt, they’ll remember who helped them. Some advisors, kids, or parents of kids may not feel completely comfortable with a full-length one-on-one meeting between advisor and child. In this case, Bradley recommends just setting a small segment of time aside for a face-to-face meeting. “I’d rather empower the parents to teach basic skills,” she says. “At the end of a parent’s meeting, I meet with the kid for 15 minutes so they get a sense of what the professional relationship is like.”

For clients’ kids that are about to graduate college and may want some face-to-face time with an advisor, Christian Echavarria, founder and CEO of ALTO Group, believes the meeting is more productive when the kid can bring a little bit of knowledge to the relationship. His recently released book, Feel Smart About: Managing and Investing Your Money in Your 20s, can be used by advisors as a tool to help dialogue with their clients. “The book is a friendly approach to how a young person thinks through the issues of money,” he explains. “It’s easy to read and very specific to an audience that has unique needs.” The book’s main emphasis is how to think about money. “We found that most of the time, people think of money in terms of spending. We’re trying to change the mindset. They should think about saving and investing–people should know the fundamentals of investing before they meet with an advisor.” Jack and Doc–the characters of the book–are also the stars of a series of three videos being broadcast through YouTube that trace Jack’s journey to financial literacy by Echavarria’s start up company, FeelSmartAbout. The videos, together with the book, are tools advisors can use to connect with their potential young clients and prepare them for a meeting. To find the three videos currently on, do a search with the phrase “401(k) education,” then email them over to kids about to graduate college and/or get a job.

In fact, the concluding year of college is a time when the economic-savvy child you’ve help to create may become one of your independent clients. They are about to get or have already received a job and they may be putting money into a 401(k), thinking about making major purchases, and may soon plan to get married and start a family. According to the Schwab survey, just 14% of teens understand how income taxes work and only 13% of them know what a 401(k) plan is. They may very well need your help. Also, Mellan suggests getting your new client together with your older clients–their parents– to talk. “When the parents are doing estate planning, encourage them to talk to their children and what they want them to do with the money while they are still alive,” she says. This will save kids the trouble of having to do this task when they are busy grieving their parents’ death.

Keep in mind…

Remember–and tell parents to remember–that every child does things at a different pace, and there’s no absolute answer or perfect time to start. “Every child is different,” notes Foster. “It’s amazing that in the same family of two or more kids, they will all respond differently to money. Some are spenders, some are savers, and some don’t care,” he adds. Even more importantly, Foster believes in starting early and being flexible. “It’s a journey,” he says. Also, remind children that it’s okay if a major investment goes down. “Life goes on. Stakes are part of the landscape,” says Bradley. “Kids have to learn that loss is there as well as gain.” The most important thing is that they learn. And, as Mellan points out, there are negatives if you ignore the issues. “If you don’t talk about money [to children], they are either going to imitate what the parent does or do the opposite, and in neither case are they free to deal with money in a way that represents their value and integrity,” she says.

Staff Editor Kara P. Stapleton can be reached via e-mail at [email protected].


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