Most parents want what is best for their children, but sometimes have habits themselves that equate to teaching their children poor financial habits. Children learn by watching their parents and other adults (modeling) and as they mature their mistakes and bad habits become hard to correct. Bad financial decisions can be especially detrimental when they become adults and are responsible for their finances.
Teaching your children how to be frugal and manage their money will have positive long-lasting effects and not negative consequences of overspending when it comes to their own money. Here are some common mistakes parents should avoid:
Using Credit to Make Frequent Purchases- Children that see their parents paying for everything with credit can’t understand the concept of using cash because they don’t see the actual payment happen. Parents that use credit for their own ‘rewards’ are enforcing spending by using credit and leading their children toward spending and credit problems without even realizing it.
Giving Children Money and Buying Items Each Time They Ask- Children who are consistently receiving what they ask for each time don’t learn delayed gratification. Often what they wanted and receive becomes less rewarding when they move onto the next new one. This ties into goal setting and teaching children to work (or wait) for what they want and is missed when parents over-indulge their children.
Parents are Trying to Keep Up with ‘The Johnsons’- When children see their parents buying items like their friends in proximity, they get the idea that they need to do the same. Children (and their parents) don’t see the income or debt side of what others do. Trying to keep up with someone else’s spending and acting like them is not a healthy plan.
Failing to Set Budgets- Parents that have a budget set for their monthly spending and give their children a spending budget model positive behavior and are more likely to model using cash for purchases. For most Americans, credit card spending is linked to buying outside of their budget because they don’t have the financial resources to buy in cash.
Not Saving into an Emergency Fund or For Retirement- Parents that don’t have either of these, typically don’t see the importance of talking to their children about saving. When parents model saving and speak to their children about the importance of having money for an emergency or retirement, their children model the same behavior as adults.