You’re doing everything you can to protect your kids and keep them safe. You spend countless hours thinking about what you can do to save money for your children’s’ future. You have some great intentions but you may unconsciously be dooming your kids’ financial future.
For example, do you not talk about money? If you don’t talk about money at home your kids are less likely to understand the value of a dollar. As a result, many of them grow up uncertain about how to manage money. Experts say that about the worst parenting mistake you can make is to not talk with your kids about money. Does talking about your family finances make you feel uneasy? You need to put these feelings aside and really make an effort to teach basic personal finance skills to your kids. If you don’t talk about money, it’s possible you could be robbing your children of the essential financial skills that would help them avoid debt and earn good credit scores.
Are you setting a poor example?
Good financial modeling begets good financial habits. If you have money troubles your kids may be picking up on them. One Bank of America study found that nearly 20% of parents admitted they don’t follow the advice they give their children. In addition, nearly 60% said that what most influenced them in how they handle their finances now was their parents’ advice and the examples they set. Don’t make it “do as I say not as I do”. Make it do as I do.
Using credit cards in place of cash
Do your children ever see you using cash to make your purchases? You probably don’t use cash very much if at all because credit cards are easier and more convenient than carrying a thick wad of cash. But avoiding cash isn’t a good idea, especially if your kids do not understand what you’re doing. Another study found that most teenagers don’t understand the difference between a credit and a debit card so they generally are not going to know if you’re using your own money or credit. They see that plastic just makes things happen – and it looks so darn easy – which can be a dangerous lesson to teach.
Shielding your kids from money arguments
Most parents tend to shield their kids from arguments about money. But this can actually be beneficial. According to research from T Rowe Price kids that see their parents financial arguments are more likely to feel smart about money and more confident about what they learned from their parents, In addition, when you and your spouse argue you generally exchange a lot of information to support or oppose your views. All of this provides a lot of food for thought, which is probably one reason why most children who witness money arguments believe their parents, are good financial teachers.
Not differentiating between wants and needs
Let’s say you’re talking about an upcoming business trip and you say, “I need a new suit for this conference”. While this kind of comment might seem harmless it’s not. For one thing, you haven’t discussed anything that will help you succeed at the conference except for a new suit. What you haven’t said anything about is hard work and skills. The lesson you could be teaching your child is that if you just buy nice things you’ll get what you want. Plus, you may want a new suit but that doesn’t necessarily mean you need it.
It’s important to teach your kids the difference between needs and wants. Just because you want a new suit for that conference doesn’t mean you need it. It would have been better to say, ” I want a new suit for this conference so I can make a good impression. Similarly when your child says, “I need a new computer,” you need to make him or her understand that unless their current computer just died what they really mean is, “I want a new computer,” which will start a whole different conversation.
Are you hurting your kids’ financial future by not providing an allowance
Do you dole out cash on an as-needed basis? Maybe today it’s money for the mall while tomorrow it’s for movies. Unfortunately, just about everything your child learns from these arrangements is negative. For example, they do not learn to budget or save for the things they want. What they learn is that they can get things at someone else’s whim and they learn how to scheme to figure out when you’re in a good mood and could be successfully hit up, which is bad. When you give your kids an allowance it will help them learn how to manage money at a young age as well as developing decision-making skills. They will then become more confident about money management when they reach adulthood. Keep in mind that it’s your children’s money so don’t micromanage it. Let them learn that when that allowance is gone that’s it. Don’t bail them out.
This is an area where many parents unfortunately fall short. The fact is that planning for college is a great opportunity to teach your kids how to look down the road and plan for the future. According to a study published on SallieMae.com, parents who saved for college developed the habit of saving – which was a good financial behavior. Not only that, those who admitted to planning for college were able to successfully save for it.
Many people get hung up on the question as to who should pay for college the parents or the children. This is a good place to start laying out financial planning for the long term with your child. In fact, your kids should be taught to understand that you’ll be saving for retirement and can only help with their college costs. This will also help them understand the importance of saving for retirement.
You should also make sure your kids take tuition costs into account when choosing a college or university. He or she might want to attend an elite private university but this might not be worth the money if your child wants to pursue a career that will never pay more than $70,000 or $80,000 in a year. Do the math and you’ll see that this just doesn’t make sense. Children need to think of college as an investment and not just a growing experience.