Why Teaching Your Kids about Money Can Be Better than an Inheritance
The life-long impacts of empowering your kids with financial education
Leaving an Inheritance is overrated—Teaching your kids how to build their own wealth is underrated.
It embodies the old proverb, “Give a man a fish, and you feed him for a day; teach a man to fish, and you feed him for a lifetime.”
Giving your kids an inheritance might make them financially comfortable for a while. However, teaching them to make, manage, and invest their money can ensure their financial security for life.
In this article, I review the research that shows the lifelong impact of parents teaching their young kids about managing money.
Why is early financial literacy crucial for long-term success?
Half the battle in managing money is adopting good habits—and since habit formation can begin in childhood, it’s very important to talk to your kids about money early and often.
A 2012 paper titled “Loan Performance among Low-Income Households: Does Prior Parental Teaching of Money Management Matter?” examines the influence of parental teaching of money management on the financial outcomes of their children in adulthood.
Specifically, the researchers focused on whether early parental teaching about money impacted loan delinquency and foreclosure for their kids later in life.
The researchers asked low- and moderate-income households whether or not their parents taught them about money as kids.
Those who said they received “a lot” of parental teaching about money were about 25% less likely to default on their loan payments than those in the same income bracket who said they received no parental teaching.
The people who received a lot of parental teaching were also 38% less likely to have their homes foreclosed on.
The study shows evidence that early parental teaching about money management can have a life-long impact on a kid’s financial outcomes when they reach adulthood.