Mark Berg, a certified financial planner, recently shared his insights on how parents can help their children financially without fostering a sense of entitlement or creating unhealthy habits. In an interview on “The Long View” podcast, Berg emphasized the importance of starting financial education early and setting clear expectations. Berg suggests that parents can begin having conversations about money with their children as young as six or seven years old.
He recommends using physical cash to help kids understand the concept of money and the trade-offs involved in spending decisions. Berg also advises parents to encourage delayed gratification by having children work towards their desires rather than always providing instant gratification. As children grow older, Berg recommends setting clear parameters for financial support, particularly when it comes to college expenses.
He provides an example of a family with limited means who set a specific annual limit for their children’s education costs. By communicating this limit upfront, the children found ways to manage expenses through community college, accelerated graduation, and scholarships, ultimately graduating debt-free. Berg cautions against oversaving for college, particularly if parents assume their children will attend costly graduate programs.
Tips for teaching kids money
He suggests aiming to save around 80% of projected costs when children are young and adjusting as needed. Additionally, Berg stresses the importance of balancing college savings with retirement planning to avoid compromising long-term financial security.
To help children develop good financial habits, Berg recommends opening a checking account early on and establishing a credit history as soon as possible. He emphasizes the importance of teaching children to pay off credit card balances promptly to avoid interest and late fees. Berg also advises parents to encourage their grown children to become self-reliant adults as soon as possible.
He suggests strategies such as gradually increasing rent for adult children living at home to foster financial independence. When it comes to passing wealth down to the next generation, Berg recommends starting slowly and carefully observing children’s decision-making skills. He suggests matching a child’s earnings from a summer job and putting that money into a savings account or earmarking annual gifts for education or retirement to avoid lifestyle inflation.
Ultimately, Berg emphasizes that clear communication, prudent financial planning, and fostering a sense of responsibility are key to helping children develop a healthy relationship with money and setting them up for long-term financial success.
