As a financial professional and lifelong advocate for education, I am wary of the continued emphasis on financial literacy as the “magic key” to unlocking generational financial success. In previous articles, I discussed lessons learned from 2020, and perhaps the greatest lesson of all should be prioritizing financial education. But when a friend said to me recently during a conversation about her struggles with money, “I know what to do, I’m just not doing it,” I began to think differently about how we become financially resilient—and how our approach to financial education needs to evolve.
Often, we see the terms “financial literacy” and “financial education” used interchangeably and without understanding the implications of each concept. The vocabulary choice here matters because literacy implies that there are finite skills that, once acquired, will enable us to be financially successful. But to be educated means that we continue to embrace new information throughout our lifetimes. For example, gaining basic reading skills is key to being a literate person. But the education process continues as we expand our vocabulary, develop our critical thinking abilities and understand the nuances of certain genres. The same scenario applies to personal finance. Your family members may understand the basics of budgeting, saving and even concepts such as compound interest. But is everyone adding to their emergency funds to increase their safety net, contributing as much as they can to their retirement plans and having regular money talks in their families? Have you adapted your own financial plans to reflect your new life as a parent, partner or grandparent?
When it comes to families and wealth, ongoing attention to financial education is critical in order to create a legacy that can be passed on to future generations—achieved when the entire family is involved. It’s not enough to delegate this work to just one family member; even a family financial expert has to be humble enough to continue to educate herself and inclusive enough to bring everyone into the picture. Here are three tips to make sure your family is not only financially literate, but well educated.
Embrace Financial Education as a Family Value
Financial literacy is critical, there’s no doubt. Before we can go into advanced education, we must ensure the younger generation understands money principles and best practices. The problem comes when parents assume they’ve done their job and children have nothing more to learn because they’ve mastered these basics. The next step, and arguably the more useful one, is fostering an atmosphere that promotes curiosity and continuous learning, in which ongoing critical thinking is applied to financial matters.
We should continue to challenge our assumptions about our finances because the world is evolving around us. In my book, The Business of Family, I discuss how families—like businesses—should incorporate innovation-friendly habits to ensure future success similar to a firm’s R&D strategies. Consider incorporating this thinking into your everyday lives. Examples can include having younger family members manage household spending for the day or encouraging each family member to research an investment idea or charitable cause and suggest the cadence and amount with a well-planned rationale. Building in opportunities to exercise and grow money knowledge is key and should start early.
Create a Financial Fitness Checklist
As we transition into new stages in life, we naturally adopt different habits, develop new tastes and change our mindsets. This should apply to financial education as well. Often, I hear from friends and family who realize—sometimes too late—that their financial planning does not reflect what they need at the moment. These needs will differ from a new divorcee to the CEO of a multinational firm or a college graduate. Your learning must evolve at each stage.
A smart way to stay on track is to create a financial fitness checklist addressing the key elements of your financial health. Then, using your financial skills, refer to this checklist each time your personal circumstances change. For example, if you go through a divorce, have your assets increased or not? If so, educate yourself on how to make your new situation work. If you have welcomed grandchildren into your family, reference your fitness list and see if you need to update your estate plan or investment accounts dedicated to education. This checklist can form the basis of your meetings with your wealth manager and highlight areas where you may need to learn more information.
Guide and Mentor Each Other
One of the best resources for learning is communication. As a family, it’s important to see each other as financial partners who can provide and receive needed advice. To this end, center discussions around the future of your family and pose provocative questions that can help you think critically together. I’d suggest questions like: Is there anything you think the family should discuss but hasn’t been addressed? What new tools or technologies could the family use to function more effectively? What are the passions and interests that keep family members thriving, and how can the family provide more encouragement for its members’ continued progress? Having this consistent and honest dialogue will create an atmosphere of transparency—a critical element when it comes to learning. And when money topics come up, you’ll have the foundation of trust needed to address them productively.
A constructive environment that encourages continual learning will lay the groundwork for a host of far-reaching benefits beyond wealth preservation. Families that encourage education bring members together around common goals of achieving security and long-term success. When it comes to financial growth, this thirst for knowledge should be treated like any other facet of one’s life, and we should put in the work (and time) that we would into our businesses, organizations and degrees. Promoting a culture of sustained financial education will ensure that younger generations pass on their knowledge, leading to a legacy of educators and innovators.
