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Although 83% of U.S. adults said parents are primarily responsible for teaching their children how to manage money, 31% of American parents never talk to their children about the subject, according to a survey by CNBC and Acorns.
Last week, the topic was addressed on Northwestern Mutual's podcast “A Better Way to Money,” featuring social media star and Stur Drinks owner Kat Stickler and Northwestern Mutual Vice President and Chief Portfolio Manager Matt Stucky.
“I love and respect my parents, but we never really talked about money — I never saw them talk about money,” Stickler told Stucky during the conversation. “It was taboo. It was never mentioned once.”
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According to Stucky, parents can teach their children good money management like any other good habit.
“It just takes a lot of repetition — things like saving, investing,” Stucky said. “I'm not going to teach my four-year-old how to invest, just the idea that if I save a dollar, I can spend it later on something I really want. It takes a while for that to sink in with him.”
Money may not have been a common topic of conversation during Stickler's childhood, but the entrepreneur says her mother taught her the value of the dollar in other ways: by turning old jeans into shorts or repurposing empty butter dishes into school lunch containers.
Parents can not only talk to their children about money, but also set a good example when it comes to making smart financial decisions.
“There are new risks you have to take as a parent,” Stucky said. “Things like: What if something happens to me? What if I can't work anymore? How will that affect my child's financial situation?”
To navigate these uncertainties, Stucky says, you need to plan for expensive purchases. Stickler, who has a young daughter, said she has already taken some important steps to secure her future: She has drawn up a will with a schedule for each month and set aside funds for health insurance and school – and even one for clothes and toys.
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According to Stucky, parents should use today's circumstances for tomorrow's success.
Stucky recommends setting up a 529 plan where you can contribute money for college and a Roth IRA for your child.
“[With a Roth IRA]you can make contributions on their behalf up to the child's earned income or the current contribution limit of $7,000, and the amounts will be paid out tax-free after age 59½ or as needed for a specific life event,” explains Stucky. “This way, you can prepare your children for retirement while securing wealth for generations.”
Parents might also consider a Uniform Transfer to Minors Account (UTMA), which has no limit on the amount they can contribute and allows them to maintain control until their children are 18 to 21 years old (depending on where they live), Stucky advises.
Related: Shark Tank's Mr. Wonderful teaches kids how to handle money: “Stick your noses in it like you're training a puppy.”
Finally, Stucky recommends the “often overlooked option” of whole life insurance for your child.
“The policy will eventually pay a death benefit as long as the required premiums are paid,” he explains. “In addition, policies accumulate a cash value that your child can access during their lifetime.”
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