Vanguard survey finds that financial stress finds its way into kids’ minds, but that earlier conversations can help
Children see so much more than their parents realize. Subtle queues, hints, and omissions are all noticed and internalized. When it comes to a subject as ubiquitous and emotional as money, it’s even harder for parents to hide their own feelings from their children. That was one of the core insights from a recent Vanguard Canada study, which found that while 68 per cent of financially stressed parents try to hide their money troubles from their kids, that stress still finds its way to the next generation. The children of financially stressed parents are almost five times more likely to feel anxious about money than their peers.
Talking about money more openly can help, but often those conversations are happening later than they should. The survey found that while most family money discussions happen between ages 15 and 18, children show the greatest curiosity about money, and tend to form their core ideas about money, between ages 10 and 14. Sal D’Angelo, Head of Vanguard Investments Canada Inc., says that while financial literacy tends to start in the home, parents should not be left alone in this. His own firm is putting together classroom resources so that teachers can offer more financial literacy education through a program called my classroom economy. Advisors can also play a role, he says, facilitating conversations that can set the next generation up for a greater sense of security.
“Parents have a lot to deal with, it’s not all on parents. So that’s why we believe the classroom can play a pretty significant role and why we’ve opened up this program to all teachers in Canada,” D’Angelo says. “I do think an advisor can play a role as well. Because while some of the parents they serve may have financial means, just because someone has the financial means doesn’t mean they’re actually a great teacher. And maybe there are ways where advisors can help integrate some knowledge to the parents to give to the kids. A lot of advisors, as well, are thinking about that next generation of wealth and also getting to know the kids. And I think what better opportunity to actually get to know them while they’re younger, where they’re forming opinions.”
Why families hide worries and miss windows
While the survey didn’t unpack why financially stressed parents hide their concerns from their kids, D’Angelo says that it could stem from a natural and human desire to protect one’s children. The stress that’s making a parent more anxious is something they don’t want their kids to feel. The survey found, however, that those kids still find out about money stresses, often through unspoken clues. On the other hand, children from families who have open conversations about money had far better comprehension of basic financial concepts like banking, credit payments, and financial well-being. Across a survey of 1,000 families, that understanding among children of families who talked about money was roughly three times stronger than among those who didn’t.
While open conversations about money leading to better financial literacy among kids may be pretty intuitive, the survey also found that the age when kids learn about money matters a great deal. The survey found that parents often open money conversations between ages 15 and 18, when kids might be taking on a part-time job, preparing for post-secondary education, or starting to incur major expenses. However, it also found that between ages 10 and 14 is when most kids’ curiosity about money peaks. It’s in those younger, more formative, years when certain key understandings about money as well as emotional relationships with money can be forged. While D’Angelo notes that it might be challenging for some parents to start talking about money with their kids at those ages, the survey found that if information isn’t provided anxiety will fill the gap.
What advisors can do to help
D’Angelo likens a financial literacy education to learning math or languages: you have to start with the basics, build foundations, and go from there. Many of those foundations can be built in the home, but he believes that classroom programs can help a great deal as well. He notes that Vanguard’s my classroom economy program is designed to run from kindergarten through grade 12. As concepts grow more complex and technical, advisors can start to offer expertise. D’Angelo, himself a former advisor, recalls being brought into family discussions about securities and investing. Where parents’ knowledge about the bond market, equities, or prudent financial planning ends they can lean on their advisor to educate their kids.
D’Angelo believes that there’s a business incentive for advisors to help educate clients’ kids as well. The intergenerational wealth transfer is well underway, and advisors have a harder time connecting with their clients’ children when those children are in their 30s or 40s. By investing their time in educating those children, advisors can create a trusted, deep relationship with the family which can, in turn, inform better financial decisions and more resilient estate plans down the road.
“The data shows that there’s a big opportunity in childhood financial literacy. We have our program because parents can’t do it all. The teachers are trying, and hopefully more and more do. But I think the takeaway for advisors is that there’s an opportunity,” D’Angelo says. “So explore what could be possible and see if that can be an element of engaging at a deeper level, beyond just investments.”
