You might not know it, but your children can pick up on the things you do and the ways you react to certain situations. That’s why it’s important not to engage in bad money habits when teaching your kids about financial responsibility. Here are a few things you should avoid.
1. Not Talking About Money
Talking to your kids about money can be difficult, but not talking to them at all about money is a big mistake. If you avoid talking about money to your kids or even around your kids, they may get the impression that money is a taboo subject. However, being able to be open and talk about finances is necessary for being financially responsible. So be open about your family’s financial matters. Talk about how you manage, spend and save your money, and explain why. You might include them in your budget process or include them in big monetary decisions. For example, include them when you’re deciding whether to buy a new car or to take a nice vacation. Make sure that once your children reach the age when they move out and face the world on their own, they will understand what it’s like to manage household finances, and they will be prepared to tackle their own financial decisions.
2. Talking Too Much About Money
While it’s important to be open about your finances, it’s just as important to make sure that it’s not the only thing you’re talking about. Talking too much about money can teach your kids that everything revolves around money, and you don’t want them going off into the world only thinking about finances. They might end up becoming a miserly penny-pincher, or they could end up focusing only on making money, thinking that it can buy happiness. Another possible outcome of talking too much about money is that it can lead to fights with your spouse or other family members. An occasional disagreement over a financial decision is normal, but you don’t want to be a family that is constantly fighting over money. Doing so might end up causing your children to develop an unhealthy attitude toward finances.
Instead, figure out a way to talk about money that won’t end up in a stressful conflict. Come up with a budgeting process with your family and do your best to remain calm. If you feel like a financial topic may cause stress or a heated argument, opt to make it a private discussion without your children.
3. Not Teaching the Value of Money
Your children should understand that money isn’t free—it must be earned. This is hard to teach when they are financially dependent on you, and when they are too young to get a job. However, you can come up with household duties or other tasks that your children can complete for an allowance. Teach your kids how to earn money for a job well done.
4. Spending Without Thinking
Make sure you are setting the right example for your children by exhibiting the right kind of spending behavior. You should not be spending exorbitantly without thinking about the consequences. This includes making large impulse purchases, racking up your credit card debt, treating your family to vacations or buying them things you can’t afford. Spending frivolously is sure to end up in financial problems and stress down the road, but it also teaches your children that money grows on trees. Your children should understand the value of money and the importance of being prudent with it. To do this you must avoid bad spending habits and start being more responsible with your money. Create a budget in order to determine how much money you have to spend on things, and what things you should spend it on. Involve your children in the process, and allow them to offer their opinions for what should go in the budget. Make sure you stick to your budget, and every month go over it to make any revisions.
5. Not Differentiating Needs vs. Wants
When you involve your children in the budgeting process, it’s important to teach them the difference between needs versus wants. For example, teach them that things like food and housing costs are needs, while vacations and toys are wants. Needs should be your first priority, which means that when you budget, you should make sure all your needs are covered first. Then you can determine how much to budget for your wants. This is important so that your children understand when you say you can’t afford new clothes or new toys, they understand why. It’s also important if you can afford to buy your kids new things. If you have the means to give your kids what they want, then why shouldn’t you? There’s nothing wrong with giving your kids what they want every once in a while—as long as they understand that it costs money and that they don’t take it for granted. Getting things they want should be more like a bonus, rather than something that is expected. If they grow up always expecting to get what they want, they may find themselves in serious debt or feeling deprived.
6. Not Thinking About the Future
When your children are young, retirement and saving for the future are probably far from their minds. However, one day they will be on their own, and they will need to start saving. Teach your kids the importance of saving, and why it’s important to start early. One way you could do this is encourage them to save their allowance instead of blowing it in one day or week. Help teach them that with time and patience, their money can grow enough to buy something bigger. You could even teach them about earning interest at an early age by having them “deposit” their savings with you and receive a certain interest rate at the end of each month.
7. Keeping Up with the Jones’
Keeping up with the Jones’ can end up costing you a lot of money and will also end up sending your kids the wrong message. If you are constantly spending your money to buy things to keep up with your peers—like buying a new house or car that you can’t afford—you teach your kids that success is measured by comparing yourself to others. This may lead your children to only feel good about themselves if they wear the right, name-brand clothes, drive an expensive car, or have other material possessions that their peers have. Avoid in engaging in this petty and competitive behavior, and instead teach your children that the only person they need to answer to is themselves.
While you should do your best to avoid these bad financial habits, it’s important to remember that no one is perfect. You may slip up from time to time, but you should always try your best to set a good example for your kids. And if you do mess up, fess up, and use your screw-up as a way to teach your kids how to deal with the consequences of financial mistakes.