Most Americans who are investing for retirement today wish that someone had shared financial advice with them at an earlier age, according to a survey of 1,202 investors conducted by Capital Group, home of American Funds®, and one of the world’s leading investment management firms. The survey highlights the key role parents play in shaping the next generation of savvy investors. It also identifies five conversation starters for engaging children on money, saving and investing.
“Millennial and Gen X parents are paying forward lessons learned about finances and investing by talking about money and saving with their children,” says Heather Lord, senior vice president and head of strategy and innovation at Capital Group. “Tips such as starting to save early and regularly and taking advantage of employers’ 401(k) match can go a long way toward establishing a strong financial future. These are conversations worth having that will impact how younger Americans invest for their futures.”
Mom knows best
Large numbers of American adults say they wish someone would have shared advice with them about saving for retirement and retirement accounts when they were children or young adults. Forty-five percent of women and 33% of men say they wish they had learned earlier about saving for retirement and 401(k) tips. Other popular topics included debt, credit cards and living within your means, as well as general knowledge about the stock market and how investing works.
The survey revealed that mothers are more likely than fathers to talk with their children about a number of financial topics, including the importance of good credit and the need to start saving at an early age (76% of mothers versus 62% of fathers), starting to save early (70% of mothers, 64% of fathers), saving for retirement (69% of mothers, 65% of fathers) and paying off loans (50% of mothers, 42% of fathers), but they are in a statistical dead heat with dads on the subject of investing or buying a car. Interestingly, fathers are much more likely than mothers to answer that they are the primary investment decision-makers in their household (79% of fathers versus 51% mothers surveyed).
Five pieces of wisdom
When asked to select the most valuable pieces of wisdom to share with children about money, parents are most likely to recommend the following:
- Live within your means. More than half of parents (56%) selected this piece of advice as one of their top three recommendations for a child, teen or young adult.
- Start saving early and regularly. Forty-three percent prioritize early saving behavior as a key for a good start in life, and this is closely aligned with the 46% who say young people should save regularly each month and with every paycheck (e.g., through their employer’s retirement plan).
- Take advantage of your employer’s 401(k) match. Thirty-three percent ranked this among their top three pieces of wisdom, though boomers (45%) are much more likely than millennials (23%) to make this recommendation.
- Don’t carry a credit card balance and manage credit effectively. This was strong advice for 28% of parents, but boomers were again significantly more likely than millennials to select this (39% versus 19%).
- Create a budget based on percentage of income. About one-in-five adults (21%) of all generations chose this as one of their top financial lessons for children.
Teen years are the most important
Millennial and Gen X parents start or expect to begin financial conversations with their children at earlier ages than did baby boomers. Nearly 40% of millennial parents say they would start teaching children at age 12 or younger to begin saving early, almost double the amount of baby boomer parents (22%). But it’s a lifelong process, as 28% of boomers say they are still teaching their children about finances.
Parents start talking with children age 12 or younger about basics like making a budget, saving early and saving for college. The teen years are important for conversations about maintaining good credit, buying a car, using credit cards, avoiding debt and saving for college. Conversations about investing and saving for retirement come a bit later. Millennial and Gen X parents began or plan to begin conversations when their children are in their teens or 20s, while most boomers waited until their children were in their 20s or 30s.
Parents’ own childhood financial stresses may also shape the way they approach financial discussions. Respondents who grew up in a financially unstable home are more likely to talk about financial topics across the board, but especially about making a budget (66% compared to 54% who grew up in a financially stable home) and paying off loans (57% versus 43%, respectively).
Financial education starts at home
Parents of all ages believe that teaching children about financial matters should begin at home. When asked to rate their success in teaching their children about financial matters, however, more than two-thirds (69%) say they have only been somewhat successful.
When asked who should play the most important role in preparing teens and young adults (ages 18 to 25) to manage their saving and investing needs, the top three choices were parents, financial advisors and schools. Many schools do not provide in-depth financial education, which places much of the onus on parents to teach the next generation of investors to be financially savvy.
Employers ranked lower, even below friends and extended family. Employers seem to be an under-appreciated resource for financial education given the importance of 401(k) retirement savings plans for young people just starting their careers.