Pellau Magazine

Life would be so much easier if six-figure salaries were hereditary. According to a new study in the Journal of Political Economy, your son’s future success isn’t solely based on what you bring home each month, but also the life lessons you pass on, like sage advice, smarts, or work ethic. Teach your children well with help from Stuart Ritter, dad and senior financial planner for T. Rowe Price.

"No" is not a productive answer for your "Can I have that?" pleader. If your kid wants something, have him or her set a goal like buying a new bike by July, says Ritter. That way, when a video game becomes a must-have one week later, you can point out that by buying Max Payne 3, they'll have less money and have to wait longer to ride that shiny new Trek. "It helps kids understand the value of priorities and what's important," says Ritter.

Let them learn trade-offs the hard way

Some kids, however, are impulsive little devils and will buy the video game anyway. In a famous 1960s study, when 4-year-old children were given an option to either eat one treat or wait until researchers came back and get double the treats, most of the kids couldn't delay their gratification and had marshmallows stuffed in their mouths within 30 seconds of the researcher leaving the room. Priorities can be hard to teach, Ritter says, but when your child still doesn't have a bike in August, the sting of a lesson well learned will help him make a better decision next time.

Share your money worries

"This doesn't mean pulling out your tax return," says Ritter. "But you can talk about how you as a family allocate the money you earn." For example, explain that you're driving 10 hours instead of flying for vacation to help save money for a bigger house. Or that keeping an older car puts more money in the bank for college education or retirement. It conveys your family values and promotes goal-setting and sacrifice -- a lesson the majority of kids these days could use.

Keep lessons light

"Most people think a money conversation should be a three-hour, formal sit-down the day before your child leaves for college," says Ritter. "But we don't approach other important life lessons this way. Kids learn through teachable moments. They don't need to understand price-to-earning ratios any more than a 16-year-old driver needs to understand a transmission's gear ratios," says Ritter. Your goal is to pass on strategic lessons. Explain what you're doing as you pay the bills, use a credit card, or take money out of the ATM. Talk to them about why placing money in different places (like stocks and bonds, not offshore accounts) is a good thing.

Practice what you preach

Kids model behavior. If you rack up massive credit card debt, there's a good chance they will, too. If you're impulsive and reckless with spending, they'll find ways to blow their money the same way. If you've made mistakes in the past, own up to them. "It's easy as saying, 'If I'd thought about this, I would've done things differently,'" says Ritter. Talk about changes you plan to make, make them, and your children will learn how to bounce back during a tight spot -- an especially poignant lesson in this economy.

I will certainly be giving/teaching this to my 2 year old daughter as she grows up!











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