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The Money Communication Gap Between Adult Children and Parents

Philip Moeller

When it comes to money, older parents might be pleasantly surprised to know how much their adult children look up to them, at least in terms of their skills at managing money and investments. For the most part, however, parents don't return the love, at least when it comes to money.

A new survey of parents and adult children, sponsored by Fidelity Investments, surveyed parents who were at least 55 and had $100,000 average annual household incomes and nearly $530,000 in assets. It then polled the parents' adult children, who had to be at least 30 years old. These adults turned out to have average household incomes of more than $127,000 a year but only about $80,000 in assets.

Fidelity found that children looked up to their parents' money skills. Nearly half of the adult children actually said their parents had made no financial mistakes. Parents, for their part, were not so charitable about their kids. Specifically, they said their children:

-- had too much debt (42 percent)

-- had not begun retirement savings soon enough (38 percent)

-- had not built a sufficient rainy-day emergency fund (36 percent)

[Read: Boomerang Kids vs. Parents: How to Minimize Conflict.]

"Children really do view their parents as role models when it comes to investing," says Kathy Murphy, president of Fidelity Personal Investing. Understanding investments and being comfortable investing money are complex topics, she notes, and children "just assume their parents understand it better than they do."

Fidelity also found an astounding gap between parents and children when it came to the question of whether the child would take care of his or her parents if they became ill--the kids said yes and the parents emphatically said they would not need the help. Children also underestimated their parents' estate by an average of more than $100,000. This misjudgment may help explain why adult children were off-base in projecting the odds their parents would need help.

This difference also extended to specific financial help, according to Fidelity. Roughly 25 percent of the adult children said they expect to provide money to their parents, while 97 percent of parents said they would not need such help.

Even though they expect to help their parents, about 40 percent of the adult children surveyed said they expected their parents to be able to afford very comfortable lifestyles in retirement. Yet only half as many parents in this relatively affluent sample--20 percent--felt they had enough money for a comfortable retirement.

[Read: How to Help Your Children Without Sacrificing Your Retirement.]

Spurring more parent-child communication about money is not easy. Yet Murphy notes that one of the silver linings of the deep recession is that people began paying a lot more attention to their savings and investment needs. Savings rates increased, she recalls, and average attendance at Fidelity investment seminars throughout the country soared 70 percent.

Fidelity has developed a set of six "conversation starter" questions it suggests consumers ask themselves and other family members. Younger children can be included in some of these conversations, but adult children should participate in all of them:

1. "Where's my money right now?" Knowing where your money is, Fidelity says, can be just as important as how much you have. It's important to know who holds your accounts, as well as how to access them.

2. "Is any of that dedicated to retirement?" Do you have a 401(k) at work? An IRA or annuity? Have you been specifically saving for retirement?

3. "How is our debt?" Managing debt is one of the most important parts of keeping your family financially healthy and a key part of establishing a solid long-term saving strategy. Some types of debt are good, the company points out, but there are ways to minimize the kind of debt that works against you. One way to start is by making a list of the things you can pay off, and when you'll be able to do it.

4. "How do I picture retirement?" Want to travel? Pursue a long-neglected passion? If you haven't even considered what your life might be like during retirement, you're not alone, Fidelity says. But by starting to think about it now, you can be better-prepared when you get there.

5. "How does retirement fit into our overall savings goals?" Retirement is just one of many things you're saving for, the company advises. So it helps to look at all of those things together and talk about which ones are most important to you.

6. "What does marriage--or divorce--mean for our long-term saving?" Combining or splitting up finances can bring a lot of stress into your life. It's a good idea to be honest about your money and your goals to avoid any unexpected situations.

[Read: 50 Smart Money Moves.]

True parental love would include parents taking the time when their kids are younger to teach them about the financial facts of life. Having such conversations would help children become better savers and investors. But it would also foster a pattern of parent-child communication that would help the entire family over time.

"It's important for parents, as part of their legacy to their children, to pass on to them their wisdom about money and savings," Murphy says.

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