How High-Net-Worth Families Can Raise Financially Literate Children

By David Elder, CFP®, CEPA®, Wealth Manager, Partner, Merit Financial Advisors

While Generation Z is referred to as “digital natives”, unfortunately, they are less likely to be financially illiterate. According to the P-Fin Index, Gen Z has the lowest level of financial literacy (38%); Boomers and the Silent Generation scored highest (55% each), followed by Gen X (51%) and Millennials (46%).  

There is an opportunity for parents to help. Through life, what we learn or don’t from our parents is often passed down as subtle messages, not just through their actions. Financial literacy works the same way. If we are intentional and honest about financial education, we will set our kids up for success while also helping to close a generational deficit.  Here’s how we’re currently advising our high-net-worth clients.

Where are Your Kids Getting Their Financial Information?

Are your children following and engaging with financial influencers? If so, it’s important for them to understand how those influencers make money. Blending entertainment with education can be engaging, but we must help them put that information into context. Here’s a startling statistic:  63% of influencers fail to adequately disclose sponsorships or financial affiliations.

There’s plenty of online financial information from sources like Reddit and social media, but it’s more important than ever to check multiple sources. Teach your children to research and fact-check, using AI tools if needed. They should get into the habit of verifying what they learn from videos or blogs.

A simple first step is to check whether an influencer is a financial advisor. Advisors have credentials like AIF® (Accredited Investment Fiduciary) or CFP® (Certified Financial Planner). Explain how financial advisors help you make sound investment decisions. It’s important to understand that their favorite influencers might only love a product because the brand sponsors them. If you’re currently working with an advisor, ask them to meet with your child personally. We regularly meet with our clients’ children to answer their questions and educate them about important financial topics.

Why is Understanding our Financial DNA So Important?

Our money personalities shape our perspective on the value of money and how we use it. Similar to a personality test, our “Financial DNA” helps us understand our own biases and risk tolerances.

After taking the Financial DNA assessment, I have identified that I’m a community builder. That means I focus on who I’ll work with; once that’s set, I feel secure. Consider your own child’s personality and how they approach certain situations at home, in school or in sports, to start your own working knowledge of how they might handle their finances. If you work with Merit, we can have both you and your children take the Financial DNA assessment to better understand how they operate and view money. Once we know that, it’ll be easier to understand their habits and provide them with guidance.

 What Are Some Actionable Ways to Teach Kids About Balancing Work and Home Life?

Teaching work ethic is one of the most important things we can do for our children. Just like learning on the job site, nothing beats real-world experience, and it’s never too early to start.

In elementary school, this could be something simple, like helping them set up a lemonade stand and discussing how long it takes to earn money based on supplies and the number of hours you put in. In middle school, consider snow shoveling, lawn mowing, or a mother’s helper job. In high school, encouraging an after-school job at a supermarket or clothing store opens the conversation around take-home pay and taxes.

Blend lessons on hard work and saving by introducing concepts and tools like Roth IRAs and allowances. When your child earns money, teach them to save some for fun, for the future, and for emergencies. Explain future responsibilities, such as taxes and Social Security contributions, and consider showing them a pay stub so they can see where that money goes.

How Can You Build Savings Patterns Early with Kids?

Your attitude about money in conversations your children witness is just as important as direct financial lessons or learning to count.

Still, financial education often comes down to simple ratios: start working in your 20s, save 10-15% of your salary, buy a house, save for your kids’ education, and the numbers will work out. It’s all about having the income and maintaining budgeting discipline.

When children get their first full-time job, discuss saving 10-20% of their income. Ensure they are contributing to their 401(k). Talk openly about spending and saving, credit cards, interest, and healthy money habits. Too many families have been taught to think that talking about money with their children is taboo, but in fact, it’s the opposite. Not educating our children about money is doing them, and future generations, a disservice.

What Common Money Mistakes Should You Avoid?

There are a few common mistakes that parents can make when teaching their kids financial literacy.

First, don’t pass your financial fears on to your kids. When you are stressed about money, frame challenges as problems to solve. This shows we have power over our money.

Second, avoid spoiling or enabling your grown children. High-net-worth parents, especially, should be careful of making their children stewards of family wealth. For many families, funding college and down payments is appropriate, but limiting ongoing support can be equally healthy and loving. While these decisions are very personal and largely dependent on personal family dynamics, it’s important to have these conversations early so your children understand the parameters of their wealth. Building wealth takes about three generations of responsible decisions, with the fourth often achieving significant success, so it becomes important for second-generation wealth holders to learn about the challenges of high-net-worth individuals to ensure they understand the gravity of their wealth.

Above all, protect your children from themselves. Support their own future through proper estate planning, setting clear financial boundaries, and instill core values to balance helping with enabling.

Interested in learning more about your Financial DNA and how to approach financial conversations with your children? Merit Financial Advisors offers complimentary consultations to help bring clarity and structure to your financial life. Let’s start the conversation today.