Here’s the secret to successful financial planning

At a time when the economy seems to be at the heart of most conversations, Americans face a problem: Families don’t feel comfortable discussing finances. While the majority of Generation Zers and Millennials (79%) seek financial advice online, they are far less enthusiastic about discussing money with their family.

Parents and children do not feel comfortable discussing the state of their finances with each other. They’d even rather talk about controversial topics like world events and the upcoming 2024 presidential election than get into the craziness about savings, retirement, and investing.

Related: How Ordinary Americans Can Better Plan for 401(k), Retirement Income

Bank of America today released its Challenging Conversations About Money report, revealing that each generation of parents is getting better at increasing transparency about their finances: 44% of parents report having discussed investing in stocks and bonds with their children , compared to only 24% of Americans who remember. their parents discussing investment practices.

However, this report still indicates that less than half of parents are actively teaching their children about money and managing finances.

Breaking the taboo of discussing money can prepare children and parents for financial success

Talking about money is often seen as inappropriate or even taboo. However, Jasmine Rashid, the author of the paper Financial Activist Playbook, argues that it’s something we should all be doing more of as a first step in financial activism. Rashid notes that talking about financial difficulties can reduce the emotional burden and actually empower those who are struggling to address their finances head-on.

US Bank research results point to the same thing: Shame, guilt, and discomfort are often why both parents, children, and spouses don’t openly discuss their finances. Millennials (63%) and women (59%) are the most likely to feel shame about asking for financial help.

However, starting these conversations can pay off financially in the long run. And how families approach financial discussions varies by age and gender.

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More than half of men (51%) discuss investment practices with their children, compared to a third of women (31%). Mothers are much more likely than fathers to believe that it is part of their job as parents to set financial boundaries.

Lack of financial transparency affects older kids, too: 45% of millennials and 39% of Gen Xers worry about having to be financially responsible for their aging parents or in-laws, despite the fact that half of Americans don’t know their financial situation of their parents. Open conversations about money can help adult children of older parents with estate planning and caregiving needs. Such conversations can set teens up for long-term financial success.

The good news is that certain aspects of finance are becoming less taboo: 65% of parents are comfortable having conversations with their children about career paths that will help them meet their financial goals and school costs.

Retirement plans like 401(k)s and Roth IRAs (51%) are also more tangible for parents to discuss than investing in stocks and bonds (44%) and real estate (41%).

Two women are seen analyzing their taxes and finances.

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How to instill positive financial habits

Children can adopt their parents’ financial habits through learned behaviors, so it’s critical that financial responsibility is modeled early.

Tom Thiegs, family wealth coach at US Bank’s Ascent Private Capital Management, looks at the best ways families can take a proactive approach to help prepare their children for the future.

“With average household debt rising steadily over the past 20 years, it’s critical to teach kids how debt works, especially how interest accrues and the impact on credit scores,” he said.

Related: The average American faces a major retirement 401(k) dilemma.

“The earlier young people acquire this fundamental knowledge, the better able they will be to navigate the credit landscape while avoiding the pitfalls of mismanaging debt. As young adults get credit cards, a car loan or even a mortgage, their education in these areas becomes more important and the stakes higher,” he continued.

Non-housing debt doubled from $2.6 trillion in 2008 to $4.9 trillion in Q2 2024, and credit card balances hit $1.14 trillion this year. At a time when inflation is driving up consumer prices and credit card debt is mounting, it’s more important than ever for families to talk openly about finances.

Thiegs points out that understanding the basics of financial products can lay a solid foundation for future financial plans.

“It’s a good idea to start teaching kids financial concepts before the stakes are raised so you can make course corrections along the way,” he explained. “One nuance that many families don’t discuss is the difference between ‘good’ and ‘bad’ debt. Effective use of debt can sometimes be a generator of wealth rather than a barrier to it, but this usually requires a strategic approach.”

Related: Veteran fund manager sees world of pain coming for stocks