Nature vs. Nurture: How Parental Investment Choices Impact Children's Financial Mindsets

Nature versus nurture. It's the age-old debate that influences so many areas of our child's development. From personality traits to intelligence and so much more, the question of whether it's genetics or the environment that causes a child to act in a certain way comes up more often than not.

But what about the wallet?

When it comes to cultivating healthy financial habits and mindsets, the reality is that it's not an "either-or" scenario but rather a complex dance between the two. While some people argue that financial acumen is inherited (some people just naturally have a better sense for finance and spending than others), others say it's learned through the environment we live in.

Here's how your investment choices as a parent might impact your child's financial mindset (or perhaps not!). 

The Financial Acumen Gene: Truth or Myth?

Some might argue that financial wit is inherited - a hereditary endowment much like eye color or height. 

There is certainly evidence that certain traits related to financial management, such as impulse control and risk aversion, might have a genetic component. 

And other studies have suggested that dopamine-related genes might influence the way we manage risk and make investment choices. While these are relatively new fields of research, there's potential for genetics to play a role in financial behavior.

However, this is only part of the story. Financial literacy is a skill. Like all skills, it can be taught, and it evolves through learning and experience.

While some children may display a natural inclination for numbers and fiscal responsibility, financial literacy is predominantly something that is nurtured. Parents have a significant influence over their children's financial mindset through the environments they create and the values they instill.

Why Financial Literacy Matters

Understanding finances is a life skill that can significantly impact a child’s future. 

Without a grasp of the basics, young adults may struggle with debt, making poor investment decisions, or simply overlook opportunities to grow their wealth. 

But on the other hand, instilling financial literacy at an early age helps children develop responsible habits and a positive outlook toward their financial well-being.

An investment in financial education is an investment in your child's future, providing them with the knowledge and confidence to make informed decisions and chase their dreams. 

According to studies by the Financial Industry Regulatory Authority (FINRA), young people who receive financial education at an early age are more likely to save and invest their money, and exhibit better financial behaviors as adults.

How to Positively Impact Your Child's Financial Mindset

While there are certainly some inherent traits that might impact how your child manages their money as an adult, the reality is that there's a lot you can do now to set your child up as a savvy spender. 

Here are some tips:

1. Navigating the Digital Dilemma

Cryptocurrency. Online shopping. Gaming. All of these present unique challenges that we may not have faced as children - and our parents didn't, either.

In the digital age, we have to teach our children to discern between tangible money and virtual money, as well as the dangers of impulsive online purchases. 

2. Addressing Financial Taboos

Some families might avoid talking about money due to cultural or personal taboos. They might think it's not the child's place (or concern) to worry about financial matters in the family.

However, open and honest communication about finances is essential if you want your child to have a solid understanding and a certain level of comfort with money. 

While the specifics should be age-appropriate, discuss how the household manages its finances. 75% of American teens lack the confidence to handle their own personal finances - but being upfront about how you handle yours can go a long way in building this confidence.

3. Leverage Resources

So how do you start the conversation with your child? There are all kinds of resources available to help us out - from books specifically written for children on financial literacy to online games that teach the principles of investment.

Show your child that learning about money doesn't stop. Share resources like books, podcasts, and educational videos that you find valuable.

4. Balancing Risk and Reward

Teach your children how to weigh the potential outcomes of their financial decisions, from investing in a new bicycle to opening a savings account. If you have to, write things down or draw graphs to help make things a bit easier to understand. 

5. Setting Goals

Teaching children to set and work towards financial goals - whether it's saving for a toy, a college education, or a charitable cause - empowers them with a sense of purpose and control.

6. Lead By Example

Children often model the behaviors of those around them, which makes your financial habits a powerful teaching tool. Show them how you budget, save, shop for good deals, and invest. Your financial decisions will speak volumes without you having to say a word.

7. Create a Money Routine

Get your child into the habit of managing their money as soon as they're old enough. Pass out a modest allowance and discuss how they plan to spend or save it.

8. Use Everyday Opportunities

From buying groceries to planning a family vacation, take the opportunity to discuss the costs of living and the decisions that go into budgeting. Be open about the choices and trade-offs involved in managing money.

9. Money Doesn't Grow on Trees

The concept of scarcity is a tough one for young minds to grasp. Explain that money is a finite resource; it’s earned through hard work and should be spent carefully.

10. The Power of Savings

Demonstrate how saving a little money each week can add up over time. A straightforward way to illustrate this is to have your child save for a bigger purchase, which can show them the result of delayed gratification.

11. Teach Investment Basics

When it comes to teaching your children about investing, the process can be simplified to their level without losing its basic essence.

Explain that when you buy shares (a small portion) of a company, you become a part owner. Use familiar brands your child likes as examples.

Discuss that all investments come with a level of risk - the possibility of losing money. Relate it to games or sports to make it more relatable.

Impart the lesson that investments can grow over time, but it requires patience. Encouraging your child to hold onto their investments even if they see the value decrease temporarily can be a valuable lesson.

12. Give Back 

Teach that financial health is not just about personal gain but also about giving back. Encouraging your child to donate a portion of their earnings can foster empathy and a balanced outlook on money.

13. Make it Fun

Incorporating games and activities into financial education can make the learning process enjoyable and more effective.

One classic example? Running a lemonade stand. It teaches valuable lessons in entrepreneurship, pricing, supply and demand, and of course, making a profit.

But your child doesn't have to run a business to learn these lessons. Board games like Monopoly, The Game of Life, and Payday simulate financial decision-making and introduce kids to concepts like budgeting and investment.

You can also set up a challenge with a clear financial goal, like saving for a family outing. This could involve earning through chores, reducing unnecessary spending, and making a plan to reach the target.

13. Patience is Key 

Rome wasn't built in a day, and you aren't going to create a Warren Buffet overnight, either. While it's smart to teach your child about finances, be patient and remember to tailor your lessons to your child's age, maturity level, and interests. These things take time, but small steps add up to big results.

As the old Japanese proverb says, "Money grows on the tree of persistence."

14. Encourage a Savings Mindset with EarlyBird

While the methods described above are fantastic for teaching the fundamentals of financial literacy, it’s also worthwhile to introduce tools that facilitate saving and investing. 

The best tool? EarlyBird. It's designed to make investments accessible, fun, and engaging. It allows family and friends to gift investments, helping your child build a diversified investment portfolio from an early age.

Bringing Together Nature and Nurture with EarlyBird

Incorporate these strategies into your family’s routine and watch as your child grows into a capable, responsible, and financially literate adult. 

And when you’re ready to take the next step with your child's financial education, consider using EarlyBird to introduce them to the wonders of investing.

Remember, it’s never too early to start investing. Your effort today will pay dividends in your child's financial well-being for years to come. Take the first step towards securing your child's financial future with EarlyBird.