When it comes to teaching financial skills, parents not only need to talk the talk, they need to walk the walk.
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Money experts say how parents interact with and around money can have a profound impact on how their children form life-long money habits.
“Some people could very well end up in a lifetime of therapy to undo the money habits they learned unintentionally from their parents,” says Certified Financial Planner Lauren Lyons Cole.
According to T. Rowe Price's 2014 Parents, Kids & Money Survey, 69% of parents are “very/extremely” concerned about setting a good financial example for their kids, but 74% admit they are reluctant to approach the topic because they don’t want their kids to worry.
“Attitude is caught not taught,” says Chris Chaney, vice president at Fort Pitt Capital Group. “How parents live their lives, spend their money and prioritize savings is very important to shaping their approach to money.”
While parents might be trying to say all the right things when it comes to saving, spending and creating a budget, they may be unintentionally passing on bad money habits.
You trash talk those that are better off. Lyons Cole warns parents against talking negative about more affluent people.
“Parents have a tendency to talk about wealthy people as the enemy and that creates a ‘we-against-them’ mentality. Using negative language to talk about wealth can limit children’s potential; wealth in the U.S. is incredibly fluid.”
She recommends parents talk about wealth as being within reach and to encourage children to strive for a better standard of living.
“Always talk about wealth and money as achievable, because it is. Otherwise, kids will think wealthy people are different from them and are bad and not something they want to strive to be.”
You never talk about money. Talking about money is often considered boorish, but the experts say that rule doesn’t apply when talking to children.
“Some parents say they want to talk to their kids about money as much as they want to talk to them about sex,” says Melissa Donohue, founder of financialnutrition.com, “but talking about how to properly budget and save is crucial to long-term money success.”
Emphasizing savings is important, but Chaney recommends also teaching kids how to spend money.
“Showing your kids that you budget and are a smart consumer as well as a producer will carry with them into adulthood.”
You don’t visit the bank. Yes, online banking is convenient, but children don’t get to see the transaction and learn how banking works.
“Kids associate doing things online with games since that is how they use the internet,” says Neale Godfrey, chairman of Children’s Financial Network. “Parents need to go to the bank at least once a month so their children can see them deposit money and see money has to go in before it can go out.”
You live in a fancy neighborhood. Chaney recommends parents be thoughtful of where they choose to raise their kids.
“When kids grow up surrounded by mansions, fancy cars and shopping sprees, that kind of environment can set expectations on what they can expect as a given for the rest of their lives, and that’s not always the case.”
You always pay with credit. “Always using your charge card fosters the idea that it’s a magic piece of plastic,” says Godfrey. She recommends explaining to the kids “I can use this because I pay the bill every month. If I don’t, they charge me extra and that’s called interest.”
Lyons Cole says she has worked with clients who carry a credit balance for no reason other than that’s what they were used to as a kid. “Parents often make credit card debt a fact of life, so then their children continue to make the same mistake.”
You throw them lavish birthday parties. Every parent wants the best for their offspring, but Chaney says throwing over-the-top birthday and holiday parties can leave them feeling misguided about what’s important in life.
“You want to give them everything they want, but that’s not always the best approach and sets the wrong standard in learning want versus need.”
You always give them $20. Forking over small amounts of money to kids seems harmless, but Godfrey says it instills a sense of entitlement.
“They aren’t asking for big amounts so parents are more likely to oblige, but when kids know they can run to mom, dad, grandma and rotate their sources, they will be less likely to appreciate the value of money.”