As parents, we strive hard to give children what they need to become healthy, educated, independent and well-adjusted people.

Teach your kids to ride a bike? Check. Make sure they brush their teeth every day? Of course. Fight to get them into the best elementary school and hire a tutor for the college boards? Anything that’s needed.

But there is one area where research shows parents are not always as proactive as they should be: money and wealth. Talking about finances can seem gauche or inappropriate with children. Yet kids are not born knowing how to save, budget or invest any more than they are born knowing how to snowboard.

Everyone needs to develop a basic understanding of financial matters. And young people who may eventually manage substantial assets need to be particularly financially literate. Both their opportunities and risks can be greater. Consider the old adage “shirtsleeves to shirtsleeves in three generations.” According to one well-known study on intergenerational wealth transfer, as much as 90% of the core wealth can be gone by the time grandchildren make it to retirement.1

In short, academic literature and the experiences of our advisors make it clear: Great advantages go to children whose parents, grandparents or other family members consciously and consistently teach them about the mechanics and implications of wealth—starting as young as three years old. Because, as Susan Doty, a nationally recognized leader in financial education, likes to say: “It is never too early to learn, and never too late to teach.”

To simplify teaching about managing wealth, we identify seven essential financial skills that children need to acquire, namely how to: save, spend, invest, share, borrow, earn, protect.

Teach your children well

diagram showing factors that affect informed decisions
Seven fundamental skills to support informed decision making in line with your family’s values

Philipp Hecker, Head of Wealth Planning & Advice at J.P. Morgan, says the selection of the seven priorities was informed by three sources: our advisors’ collective experience, consultations with leading financial educators, and special considerations given to the unique needs and opportunities of our wealthy clients. While financial literacy is increasingly a part of many schools’ curriculums across the country, Hecker says, relying on schools alone to do the job may not be enough.

“Children growing up in homes with significant resources face unique challenges,” Hecker points out. “For example, cybersecurity is a bigger concern. Their families are more exposed because of higher public profiles and greater wealth. On the flipside, wealthy families also often have more opportunities, with greater access to credit and the potential for really impactful philanthropy.”

Also, all education begins at home. Parents mold children’s understanding of these issues, explicitly through discussion or implicitly through role-modeling; kids are always watching! That is why many of the learning activities we recommend can be customized around each family’s unique values, and are designed to fit into your busy lifestyles.

Simple exercises
Hecker gives an example of an exercise around saving. As children turn six or seven, one suggested teaching activity is to replace the standard-issue piggy bank with three glass jars labeled “Spending,” “Saving” and “Sharing.” Children are encouraged to divide their allowance into the jars each week.

But how much should be put into each jar? There is no one right answer. This is where family values play a role.

If one family particularly values philanthropy, those parents might encourage that a full third of allowance goes toward sharing. But the point is that the values will help children make informed choices.

Susan Doty, a key contributor to J.P. Morgan’s “Children and Wealth” program, says that one of the greatest advantages of parents and grandparents teaching children about wealth is that it will prompt families to have detailed discussions about what their values really are. “When you get into the exercises,” she says, “all of a sudden you need to have what I call a ‘framework’ discussion. What do we really care about as a family?”

For example: Imagine drawing up an “allowance contract” with your nine- or 11-year-old. Decide together what you consider to be the child’s “non-essential” expenses that you’ve typically covered, and increase the child’s allowance so that he or she can take responsibility for some or part of those expenses.

In some ways, Doty adds, the learning of the parents as they grapple with defining core values is just as great as the children’s.

Consider another example: Our experts suggest that when children are between the ages of 12 and 14, parents should switch their allowance from weekly to monthly and set some long-term savings goals. What are those goals? Are they saving for college, for a vacation or for a charity? And how about what happens when a child doesn’t meet the goals or runs out of allowance early in the month?

This is where Hecker emphasizes that families’ awareness of their values is core—after all, children will someday test the limits. And, of course, because children learn as much implicitly from observation as they do from explicit instruction, parents should be aware of their behaviors all the time.

To illustrate the power of positive role-modeling, Hecker shares the example of a family friend, whose teenagers are into clothes shopping these days. She often takes her children to clothes stores and chats with them about the pros and cons of purchasing certain items. Sometimes, she makes it a point to leave a store empty- handed—signaling to her kids that they’re in control of saying “no thanks” and can have fun shopping without buying.

It boils down to this, says Doty: “We have the blessing of resources. The wealth creators are concerned about keeping their children from squandering it, and remaining motivated. If we want our children to be good stewards, to use money wisely, it requires some teaching and learning from all of us.”

Please feel free to reach out to a J.P. Morgan Advisor to discuss these and other wealth issues, and to obtain your copy of J.P. Morgan’sTeaching your children about wealth: A guide for parents and grandparents.