When my daughter was five years old, we had a conversation I’ll never forget. We were in the car, having just left a store where I wouldn’t buy her a toy she wanted. More specifically, I’d told her, "We don’t have the money for it."
Her response? “Just go to the machine and get some.”
That was the first time I wondered if—simply via my behavior—I was teaching my children the wrong money lessons. In fact, it’s something many of us are guilty of.
“Parents are the most impactful teachers in their kids’ lives,” Susan Beacham, author of O.M.G.: The Official Money Guide for College Students, said. “If you’re messed up with money, look in the mirror. It could start as early as the womb.”
Learn some common parental mistakes and misconceptions that many have surrounding money, as well as actions you can take to avoid sending the wrong messages about finances to your kids.
The Mistake: Not Modeling Good Behavior
The lesson: Long before they head off to nursery school, kids are learning from you even if you don’t say a word.
The fix: All along the way, the best way to teach your kids is to show them the right things to do, rather than tell them. “If you want your kids to save, don’t preach saving,” Beacham said. “Take them with you to go to the bank to make a deposit.” Then once you complete the action, explain the process step by step.
Similarly, think about the message having a stack of unpaid bills on the kitchen counter sends. “Take that past-due bill and put it in front of your middle schooler … say, ‘This one got by me and now this column shows how much more this is going to cost me because of that. But I’m going to fix it and pay it today,'" Beacham said.
The Mistake: Always Letting Your Spouse Pay
The lesson: Kids notice more than you realize. Kimberly Palmer, author of Smart Mom, Rich Mom, recalls that she had gotten in the habit of not taking her wallet with her when she went out to dinner, because her husband paid for everything. “It was a leftover habit from dating. I let my husband pay,” she said. “I realized my daughter never saw me paying for things, and she was understanding it around age five. She thought it was daddy’s job.”
The fix: A U-turn. Now, Palmer makes sure her kids see her pay for things. But she also notes it’s not just enough to do it, you have to talk them through it. “When I pay the water bill, I have my daughter sit next to me,” Palmer said. “The water bill comes with a visual chart. It’s easy for her to grasp that. It’s an easy way of showing what you’re doing with money and how you’re paying for things.”
The Mistake: Using Plastic Without Explaining It
The lesson: When kids see you pay with a credit card, they think can have whatever you want, whenever you want it, without having to budget or pay for it with real money.
The fix: So much of our financial lives are now invisible, in that they happen electronically and without the visible exchange of cash. So you need to walk your kids through transactions in ways that previous generations didn't.
Teach your kids how banking and credit cards work. Explain that the money you work for—your paycheck—is deposited automatically into your bank account. (For older children, you may want to elaborate that taxes are taken out.) Note that any money you pull out of the ATM or spend using your debit card comes from those funds. Be sure to also show them how purchases on a credit card wind up as line items on your monthly bill, which you then have to pay to avoid interest.
As your children become more advanced in their math skills, show them how interest can double or triple the price of an item in short order.
The Mistake: Not Talking About Money in Front of Your Kids
The lesson: According to research from T. Rowe Price, 41% of surveyed parents are reluctant to discuss financial matters with their kids. What children take away from that is that there’s something about money that is inherently bad, shameful, or embarrassing.
The fix: Make talking about money an everyday occurrence. Start young, when they’re in the grocery store cart, by having an external dialogue—with yourself, if need be—about why the organic apples are more expensive than the non-organic ones and if the store brand of oatmeal is worth more than the name brand. The idea is to give them visibility into your thought process. As they get older, talk them through the logic behind saving, investing, and giving to charity, Beacham recommends. “And if you have to say no, add the because," explained Beacham. "And let it not be ‘because I said so.’”
The Mistake: Fighting About Money in Front of Your Kids
The lesson: You can’t disagree about finances without it dissolving into an argument.
The fix: Allow your kids to witness you and your spouse having rational discussions about an okay amount to spend on something—for instance, a dinner out, or a new piece of furniture. The idea is that they can see you compromising or even disagreeing while continuing to maintain a solid, loving relationship. Even if you’re having a tough time financially, you don’t want to shield your children completely, Marty Allenbaugh, CFP with T. Rowe Price, said. “It’s an excellent time to teach them about what’s occurring so you don’t pass your bad habits to your kids.”
The Mistake: Making Impulse Purchases on a Regular Basis
The lesson: You don’t have to plan your spending. You can spend today, and deal with it tomorrow.
The fix: “When children reach age five, they can start understanding trade-offs before making a purchase,” Allenbaugh said. It's important to be vocal about the fact that you’re considering delaying or not making particular purchases. Doing this once in a while is not enough, he notes: It’s a message you should try to repeat weekly.
The Mistake: Bailing Your Kids Out When They Make Money Mistakes
The lesson: There are no consequences to their actions. If they need a financial do-over, they can have one.
The fix: Let your kids feel buyer’s (even investor’s) remorse from a young age. When they use their allowance or birthday money to buy a cheap toy that breaks, for example, give them your sympathy. But don’t buy them a new one. Let them mull whether it’s worth it to spend their own money on it the next time around.
If you've been sending some of these messages to your kids, take heart: It's never too late to put the effort into cleaning up your act. "What's more exhausting than the money mistakes along the way is the child [who never learns] and fails epically," Beacham said.
(With Kelly Hultgren)