How best to give daughters financial smarts

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As a father to three – soon to be four – young children, Toronto independent financial adviser Arpad Komjathy has his own plans for training his two school-age daughters about investing for their future.

"While my oldest is not yet six years old, I truly believe that her financial education should start at a young age," says Mr. Komjathy, 47, a certified financial planner who is a graduate of the Ivey Business School at the University of Western Ontario in London, Ont. "Investing one's savings is a complex yet critically important life skill. Ideally that skill is developed over the years starting in childhood and young adulthood."

Mr. Komjathy is building on what his school-age daughter is learning at senior kindergarten about the coins and paper money in circulation in Canada. "The lesson is basically an understanding of what money is, and why it is important to our everyday lives," he says.

"But as her counting and reading skills improve, having her help with house chores and getting paid for it, and then encouraging her to save that money and perhaps deposit it in her own bank account will further help teach good financial lessons. By the time she reaches her early teens, she will continue to learn how to balance saving and spending, augmented with various, easy-to-read investing books such as George Clason's The Richest Man in Babylon, one of my personal favourites.

"High school is the time when all young people, not just my daughter, should be developing a basic understanding of investment markets, and how those markets behave over time," he continues. "Being a successful DIY investor requires investment knowledge, skill and this kind of ongoing focus for years."

Mr. Komjathy believes that when it comes to investing, women face additional challenges; societal expectations for women put a stronger focus on family as opposed to finances.

But while Barbara Stewart might admire Mr. Komjathy's concern for his daughters' investment education, she is careful to note that fathers aren't the only teachers of good financial sense to girls.

In 2010, Ms. Stewart, partner and portfolio manager at Cumberland Private Wealth Management in Toronto, commissioned an Angus Reid survey of 1,000 women across Canada to gain some insights into investing behaviours.

The survey asked: When you were growing up, how would you say you principally acquired your financial knowledge?

Remarkably, a huge percentage of women (73 per cent) said they learned about money either through real-life lessons or from other people who were role models. They did not learn it from formal instruction or advice.

"I explored this more deeply in 2011 when I interviewed 50 accomplished women around the world on the topic of how they learned about money when they were growing up," Ms. Stewart continues. "A well-delivered message from a parent or grandparent was certainly a common theme.

"'Be financially independent' was the message that was most prevalent," continues the author of How Smart Women are Investing/Spending Their Resources in 2013, a white paper published this year on Women's Day. "Importantly, it was not just dads who were the main influencers on future investing behaviour. It was just as often mothers, grandmothers and female family friends."

A recent Wall Street Journal article, citing a slew of new U.S-based studies, suggested that young women today are not as financially savvy as might be expected. While they have made strides in most other areas of Western society, when it comes to their finances young women today are still stuck in the 1950s.

According to the report, two in five of the 600 women surveyed for Wells Fargo this past summer said they were "not at all" confident in their ability to invest, even though they had household investible assets of at least $250,000. That matters because investing confidence "seems to be the linchpin" of a number of behaviours that help women increase their savings, such has having a financial plan and a willingness to invest in stocks, in preparation for retirement, says Karen Wimbish, director of Wells Fargo's retail retirement business.

Things aren't looking up among women in their 20s, according to additional research also sponsored by the bank. Despite having better pay and fewer commitments outside of work to juggle, "the investing-confidence results are the same," Ms. Wimbish was reported as saying. "It's like talking to their mothers and grandmothers."

Here in Canada, Ms. Stewart bridles at the implications of the Wells Fargo conclusions.

"Are women not showing strides as investors despite their general progress? Is 47 per cent [of women] versus 55 per cent [of men] really a statistically significant gap for a self-reported survey on [who contributes to] 401(k) retirement plans? In my view both questions are too limited," Ms. Stewart says.

To get at the core issue of investment behaviour, Ms. Stewart first wants more context around what constitutes the word investing.

"I interviewed 100 accomplished women around the world last year to see how they are investing and spending their resources," she says. "The most fascinating discovery was that at least half of the women told me they are spending some portion of their potential retirement funds on what matters to them now, rather than investing in traditional longer-term asset classes. In fact, 25 per cent of women interviewed said they are investing a sizable portion of their entire wealth in a business that is directly related to their personal cause."

Many women, Ms. Stewart adds, are not waiting for retirement to begin pursuing the interests that they are passionate about. "They are defining, creating and financing their dreams now. And traditional asset mix charts do not tell that story: Investing can take many forms, not all of which show up on a balance sheet."

And while she can respect Mr. Komjathy's efforts to instill good investment habits early in his daughters, she feels that young women today don't need their fathers telling them how to do it.

"Most daughters won't learn and don't learn from rehearsed fatherly speeches on 'here is how a RSP works,'" Ms. Stewart says. "They learn from life lessons and stories: stories about bankruptcies or successful businesses, imprudent savings or profitable investments. And moms, aunts, sisters and grandmothers are every bit as capable of telling those stories as dads are. "

Barbara Stewart's tips for inspiring daughters:

1. Ask daughters about the lifestyle they want. Consider what a successful tax lawyer told me about how she became inspired to learn about finance. She is now with a prominent firm in Paris. A friend of her mother's took her aside and asked her a) where would she like to live, b) what type of people did she want to interact with, c) how much she thought she would have to earn to be able to live there. This line of questioning made a huge impression on her. She realized that she needed to be honest with herself about the living standards that she wanted to have.

2. Tell them they are smart. This sounds so simple but I was impressed by how often this message from the past made a difference in the lives of women who went on to become highly accomplished. Offer your daughter the opportunity to be intellectually curious – give her some of the classics like The Odyssey and see if she reads them. They will like the fact that you assume they are capable of doing whatever they put their mind to.

3. Encourage them to be financially independent. I loved hearing the story from a former Canadian bank executive about how her father used to take her into the bank to have her passbook updated. She would deposit her allowance and see the dollars grow. He taught her to think about saving for something she wanted. When she was 13 and her best friend moved to Europe – she was able to pay for her own trip to visit her.

4. Reflect on your values and be personally responsible for them. What really matters to you? Align your investments with your values.

5. Don't be a perfectionist. Girls and women think we have to be fully knowledgeable before we invest. This attitude paralyzes us, doesn't help us build wealth, and so it is better to get started even with a small amount of money. Practise investing. Open a discount brokerage account and buy a stock. Then sell a stock. This practice will build knowledge and confidence.