Helping Preserve Family Finances

Talk More About Money with Kids to Protect Your Family's Legacy

Article by Wm. Matthew Koch

Photography by Terry Fravel

Originally published in Canton Lifestyle

Most investors work toward the primary goal of building a portfolio that outlives them. At the top of the secondary goals list, however, is helping your children and/or grandchildren become competent investors.

The adage, “shirtsleeves to shirtsleeves in three generations” suggests that wealth never survives three generations because grandchildren have a tendency to squander the legacy built by their grandparents and parents.

Here are three simple ways to avoid this cycle:

1. Talk about money. In our society, personal finance can be an awkward topic. That won’t be the case inside your home if you involve kids in decisions like buying a car. Talk about which vehicle makes sense for your family, and discuss the pros and cons of buying new vs. used. Ask questions like, “How much will the vehicle actually cost if we finance it?” and “What else could we do with that money?” to help them understand the weight of these decisions.

2. Set the example. If you contribute to a 401k or other retirement plan, show your kids the plan. Explain how you selected the investments you own; describe the emotions of watching the balances go up and down; tell them how often you review your portfolio. Kids are sponges, and your habits will have an impact on their future financial decisions.

3. Create a family 401k. If your child is prepared to save money and not touch it until you mutually agree on a particular purchase, offer them a match in a family 401k. Having their own “skin in the game” is a powerful way to get their attention. Investment mistakes they make as a teen might cost hundreds of dollars, but it’s better than making the mistake after age fifty and losing hundreds of thousands of dollars.

Passing on sound financial and investing habits is a tremendous act of love. Children are unlikely to learn these skills in school. I believe it is an exceptionally valuable investment of a parent's time to take the fear out of investing and break this cycle.

Wm. Matthew Koch is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley in Canton, OH.  The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be appropriate for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.  Investing involves risks and there is always the potential of losing money when you invest. Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.  CRC 3409407 01/2021

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