When it comes to teaching your children about money, there is no single right way. There are, however, things you can do to guide them along a path and empower them to learn good financial habits. Below are 7 common mistakes that parents make when teaching good financial skills and habits to their children.
Money Mistake 1 – Pocket Money.
A danger with automatically giving pocket money is that it can create an entitlement mentality.
A young person having money of their own however is an important rite of passage and can form the basis of excellent financial education in budgeting, saving and spending.
One of my favourite money experts, Loral Langemeier is emphatic on the subject:
“NEVER PAY YOUR KIDS AN ALLOWANCE”
She argues that the best investment you can give your child is to teach them the value of entrepreneurship and the way that every economy in the world works. So instead of paying pocket money every week, design exercises and activities that are truly focused on basic finance.
Martin Lewis founder of Money Saving Expert is a fan of both pocket money and financial education – and he recommends encouraging children to work for their financial rewards, in order to embed a principle that will serve them well throughout life.
Money Mistake 2 – Not Talking About Money
Stay silent about money and you risk leaving your children open to the pitches of TV adverts and peer pressure.
Parents are the main source of money information for children, but 74% of parents are reluctant to discuss family finances with their kids, according to the 2014 T. Rowe Price Parents, Kids, and Money Survey.
Even if money is tight, don’t stress about it in silence.
When parents are worried about money but are not communicating their financial situation, children pick up on the anxiety and associate it broadly with finances. Rather than learning money lessons from their parent’s mistakes or situation, children instead learn that money is ‘stressful’ and ‘bad’.
Money Mistake 3 – Magical Credit Cards
Studies have shown that people spend 30% more when they use cards instead of cash. When you’re using plastic, it’s easier to ignore how much money you’re really burning through.
Credit cards not only wreak havoc on our budget, but also set a bad example for our children. Kids seeing cards being swiped and in the child’s eyes, you haven’t exchanged anything for your purchases.
Children need to understand that when we buy something, the money we’ve spent is actually gone. There are alternatives; using cash everyday instead will give your child a more realistic picture of how money works. Or when you spend using a card take some time to explain that that creates either a bill, which has to be paid, or is taking the money from your bank account as in the case of a debit card.
Money Mistake 4 – Setting a Bad Example
How can we expect our children to save money for the future when we don’t do it ourselves?
It’s very important that not only is saving a habit but a highly visible one.
This can include a savings jar prominent in the home, labelled with the holiday, event or purpose that it’s for. If your kids at whatever age see you putting your spare change in the jar on a regular basis they may get the bug and start saving themselves.
Money Mistake 5 – Saying Yes for an Easy Life
Many parents are actively teaching their kids about money – but their children are learning all the wrong lessons.
David Bach author of the Automatic Millionaire believes that the biggest mistakes that parents make is not saying ‘no’.
“I will go to someone’s home that is $30,000 in debt and their children have piles and piles of toys. This creates children who don’t know how to hear the word ‘no’ and they become adults who want instant gratification and live beyond their means. Plus, they miss crucial lessons like budgeting, prioritising desires and saving for something valuable”.
Never forget your great influence as a parent.
Money Mistake 6 – Not letting them fail
How often do we rescue our kids when they make a financial blunder? No-one wants to see their child fall down, literally or metaphorically but by always bailing them out we rob them of the chance to learn from their mistakes.
Fast forward to the teenage years and you may become accustomed to paying off mobile phone bills, covering car insurance or in one case I heard of re-mortgaging your home to pay off a child’s payday loan debts.
Money Mistake 7 – Mind your Language
Children make many requests every day. Parents will often deflect another purchase request by saying “I don’t have enough money on me” or “we can’t afford that”.
The language used to explain this to a child is very important.
An honest dialogue with positive language will get you positive results. Explaining why you’re not making the purchase gets kids thinking about prioritising their wants and teaches them to be more aware shoppers in general.
Rather than saying we can’t afford it try how can we afford it? This gets the young person thinking about ways in which they can take charge of the situation rather than being a victim of circumstance.
This article is an extract from Daniel Britton’s book The “7 Money Mistakes That Parents Make” an eBook version is available for a limited time free from the Personal Finance Academy website