By Ryan Vogel, CFP®
In Part 1 of this series, we examined gratitude, sense of purpose and balance. Here we’ll discuss ways to teach your kids about charitable giving, delayed gratification, investment patience and taking on appropriate levels of risk.
One of the toughest things about being an advisor is knowing how to avoid pushing your own values on your clients. I’ve always encouraged my children (and many clients) to spend money on things that truly bring them joy. Otherwise, what good is having a lot of money? At the same time, I realize we have clients who grew up during the Great Depression or have parents who did. They were taught at an early age to scrimp and save because you never know what danger lurks around the corner. If they’re comfortable hoarding money and never spending it, I get it. If saving till it hurts gives them peace of mind and a sense of purpose, then I’m not going to try to change their thinking.
As advisors, our job is to help clients understand the implications of the financial decisions they’re making and if those decisions truly align with their values. One of our clients who grew up during the Depression is extremely well off. She could afford to by several new houses if she wanted to, but instead needs affirmation from us that she can afford to spend $100,000 to remodel her outdated kitchen. She really needs a new kitchen and I’m sure it will give her joy once the renovations are done. But spending $100,000 on a kitchen is hard to reconcile with the money values she experienced growing up. On the flip side, we have clients who feel they have worked extremely hard throughout their lives. They’re finally ready to start enjoying themselves and they’re not worried about leaving lots of money to their kids. We tell them it’s fine to splurge, but they must also pace themselves financially, so they don’t outlive their money. That’s a completely different conversation, but it all comes down to: “How do you want to live your life and what do you want to do with your money to make that possible?”
Again, you can have the same kinds of conversations with your kids.
One of the first things we ask new clients to do is tell us about the money messages they received growing up. The relationship they (and their families) had with money often stays with them throughout their lives. Money is a very powerful tool and motivator in our society. Money habits can be very hard to change even as people mature. Think about the money lessons you are teaching your kids. When they’re adults, what will they tell their kids about the financial upbringing they had in your house?
This is another area in which it’s important for kids to develop good habits. Giving is very important in our family. At the end of every year, we ask our boys to research a charity they’d like to support through our family’s donor advised fund (DAF). After the boys make their selections, we ask them why they want to support the charities they chose. That gives them some “skin” in the game. They see me devote time to a local mental health charity in Princeton (TCS). We want them to see the importance of donating time and knowledge — not just money—to organizations that really need it. We use Donor Advised Funds (DAF) frequently with our clients. DAFs allow you to gift appreciated stock to charity while getting a tax deduction and avoiding capital gains. You can make gifts as small as $50, or as large as 30% of your adjusted gross income for appreciated stock that’s been held at least one year-- and up to 60% of AGI for cash. NOTE: IN 2021, cash contributions can be up to 100% of AGI.
We tell our boys: “You have $200 to donate to charity. You can give in increments as small as $50. How do you want to allocate that money and why are the charities you picked important to you?”
Here’s another habit that’s very important to reinforce—both for financial and non-financial endeavors. Delayed gratification is a great predictor of financial success in adulthood. My wife and I try to find simple examples of delayed gratification. Whether it’s saving for an electronic device they “have to have!” or just waiting until after dinner to have water ice or ice cream, lots of valuable life skills can be developed when they don’t get everything they want exactly when they want it.
This is a hard one for kids—and for adults. We try to reinforce the idea that good investing is about as exciting as watching paint dry. It’s about being patient and about consistently making gains that build on themselves. Watching the magic of compounding do its work may not be as fun as speculating on a hot stock or commodity, but it sure is effective.
Should financial literacy be taught in schools?
Yes, financial literacy should be a core requirement in high school that students must pass in order to graduate. Parents must reinforce financial literacy at home. It’s essential to teach kids at an early age how to save, budget and invest the right way. When they graduate from high school, and certainly from college, they should absolutely be taking advantage of their company’s retirement plan or contributing to a Roth IRA. No amount is too small. In fact, we should have basic financial literacy courses for all kids starting in 4th or 5th grade and then again in middle school.
Why are young adults reluctant to invest?
A lot of them came of age during the 2000s--a time when the stock market stayed stagnant for 10 years. A lot of our clients have children in their late 20s and early 30s who still have a skeptical view of the stock market and investing. They’re still hesitant to take on any kind risk when they should be almost 100% allocated to stocks at their age. They can afford to take on risk to maximize their growth and they have plenty of time to ride out the ups and downs of the market. By staying fully invested throughout their adult lives, their money will double every six to ten years! That will have a massive compounding effect over 30 to 40 years.
Why I chose to be a financial advisor:
I can’t say I wanted to be a financial advisor as a child, but I started thinking about becoming one shortly after graduating from college. After I got my first job out of school and was faced with making decisions about health insurance and how much to defer into my 401(k), and how that 401(k) should be allocated. I realized that all my undergraduate business classes were not enough. I knew I needed additional education to secure my own financial future.
The more I learned, the more interested I became in financial advice, and thought it would be gratifying to help other people make good money decisions--some of the most important decisions they’ll make in their lives. I also found that the skill set required to be a good advisor (strong math skills, listening and mentoring skills) fit my personal strengths. I enrolled in the CFP curriculum and completed the course work and tests on nights and weekends while I held my full-time job at Vanguard. I have no idea what career path my boys will follow, but they’ll need good money habits regardless of their circumstance. I’m thankful to have such a great job that allows me to help people all day long and a loving family to support me. I hope they find the same fulfillment in life.
RYAN M. VOGEL, CFP® is the CHIEF PLANNING OFFICER, PARTNER at Novi Wealth