There’s a lot of talk about how parents can prepare their kids for financial independence, but it’s just as important to point out ways that parents can unknowingly hurt their children’s financial success. If you haven’t started teaching your kids about how to be financially responsible, now is the time to begin. It’s never too early or too late to brush up on the best ways NOT to teach your kids about money (and how to avoid these unhelpful strategies). Here are 20 ways that you shouldn’t be teaching your kids about money and personal finance.
Celebrate Instant Gratification
Kids want things and they usually want them that instant. To make this perfectly clear, they will often throw a tantrum when they can’t get what they want that instant. Learning not to give into these tantrums and to explain to kids that it’s important to have the money when you buy something will go a long way to help their finances as they get older. This is especially true in an era of credit cards where it’s easy to purchase even when you don’t have the money. It’s important that kids learn and know the pleasure of delayed gratification, and having to earn some of the things that they want.
Give an Allowance without Making Kids Work
When kids are young, they often are thrilled when receiving allowance money. They can learn the importance of money by getting to handle and understand how it works at a young age. As kids get older, allowances are often given with conditions attached such as chores. The problem is that parents often times get lenient and let kids have their weekly allowance without checking to see if they’ve completed the work that they are supposed to do for the allowance. All this does is teach kids how to cheat the system and work as little as possible while still gaining the reward. This is not how it works in the real world and you do a disservice to your kids my not holding the accountable.
Negatively Lead by Example
The truth is that kids will watch you closely. The way that you handle money and your attitudes about money will be seen, studied and absorbed by your children whether you realize it or not. The way that you handle your money is the way you will lead your kids by example. That means that they are going to see the bad money habits you have and will assume these are the correct ways to handle money if you do not teach your kids otherwise. One of the most important things you can do to help your kids with learning about good money management is to possess good money management yourself. If you don’t have it, start learning now not only for yourself, but for your kids.
Assume Schools Will Teach Personal Finance
I’ve never understood why schools don’t emphasize money management as a core subject in schools. I think that every school should have a semester of “How to be a millionaire by 40″ as part of their curriculum (what student wouldn’t pay attention in a class named that?), but the fact is that most schools teach very little when it comes to money management and how personal finances work. The good news is that you don’t have to be a financial expert to be a personal finance teacher to your kids. Simply showing how you manage your own expenses and what you’ve learned from the financial mistakes and triumphs you’ve made throughout your life is an excellent way to teach. Don’t be shy about passing this wisdom to your kids because chances are high that doing so will teach them more than they will ever learn about this topic in school.
Hide Your Finances from Your Kids
Many parents that are not proud of their current financial situation think that the best course of action is to hide their finances from their kids. The assumption is that if the kids don’t know about it, then they can’t make the same mistakes. The problem with this assumption is that the kids will see that you are hiding the finances from them and make a whole bunch of assumptions of why you are doing this with most of them probably being inaccurate. They will come to think that personal finances is somehow a bad thing. While certainly not easy, showing your kids your financial mistakes, and how they have consequences, can be one of the best teaching lessons that kids ever receive. If you want your kids to really learn about personal finances, have them be participants in both the financial good and bad that the family is going through.
Let Kids Learn Personal Finance Themselves
Perhaps you or someone close to you was once thrust out into the world with no support system — and they are stronger and smarter for it. But please don’t assume that shoving the baby bird from the nest is the right strategy when it comes to the importance of how to handle money. If you let your kids start from scratch without any guidance, they’re doomed to learn the finances the hard way with the likelihood that they will rack up a large amount of debt. Take the time to at the very least give them a solid financial foundation of knowledge that you wish you would have had so that they can make informed financial decisions when they are on their own.
Don’t Make Your Kid Get a Job
One of the best money lessons that you can give your kids is to make them get a job before they head out to college. It will instantly show them how much they have to work to earn even a little money and instantly dissolve that fantasy that money grows on tress. When kids don’t need a summer job to earn money because their parents pay for all their meals, clothes, gadgets and transportation, it’s easy for them to assume that earning money doesn’t take a lot of hard work. Encourage teens to find part-time work by promising there will be no more hand-outs for new party dresses, going to the movies with friends, or cell phone minutes. If they want these extras, they will need to learn their worth.
Let Kids Believe They Deserve Everything
You probably didn’t know that treating your kids to their favorite things was part of teaching finances, did you? Well, it’s true that even the youngest members of your family learn how money works through their parents’ actions. If “ask and you shall receive” seems to be one of your parental commandments, they will pick up on this and start assuming that’s how buying things works. Much like instant gratification, it’s important to let kids know that they need to make choices about what they want to spend their money on and that its not going to be everything.
Fail To Teach Compound Interest
This is a memorable and influential financial concept because it appeals to kids who dream about being rich grown-ups, but it’s also a practical lesson. It not only teaches kids that there are rewards to saving money for later, and it also involves a test in the virtue of patience. It also so how interest on money borrowed can make things a lot more expensive than the price marked on it. Don’t let this extremely important lesson slip through the cracks.
Let Kids Disrespect Items without Repercussions
The easiest way to remind your kids that money is not important is to let them get away with disrespecting their stuff. It’s far better to teach them that leaving a new toy in pieces after one use is not the way to treat something that took time and money to buy. You also don’t want them to think that once something breaks or gets boring it automatically goes in the trash to make way for a replacement. Kids need to learn that if they want to justify spending money on things they like, they will need to care for those items and appreciate the fact that they are able to afford them.
Never Be Hard on Your Kids
It’s difficult to be the parent that says, “You’ll thank me later” in the face of a teen who’s begging for cash or asking for an exception to the “earn it yourself” rule. The fact is that being the bad guy teaches them that not everyone will be so considerate of their desires in adulthood. Later in life they will not be able to beg Mommy to give them a job or ask Daddy to make their debts disappear. If you give them the occasional rough reminder that they need patience and continued responsibility to keep getting what they want, they will carry this lesson for life.
Let Kids Use without Paying
Finally being able to drive, have a cell phone, and stay out late are special milestones for teens. What is important for them to learn is that with participating in adult activities comes certain obligations. Kids should learn that borrowing the car is about more than just bringing it back in one piece. They need to pay for the gas they use by topping off the tank before they return home. Perhaps parents should also require chores or money in exchange for using the family cell phone plan. It’s important that kids realize that things do not just appear freely to use without any cost.
Fail To Teach How Credit Cards Work
Just because you don’t think your child is ready for a credit card doesn’t mean he or she isn’t ready to learn good habits and the facts behind credit card use. You’d be surprised how many teens and college students don’t understand how paying for something on credit works. Worse, they might actually believe it’s better to owe merely a minimum monthly payment instead of the whole amount of their purchase. If you teach them early that credit cards are powerful tools that have both advantages and disadvantages depending on how they are used, they will understand the needed restraint that comes with being a credit cardholder.
Let Kids Spend Everything They Earn
When kids first start working or earning an allowance, they might only make enough money to see a few movies, buy a couple of video games, or purchase a pizza dinners with their friends. While it’s fine to let them enjoy the few hard-earned dollars they do make, they also shouldn’t think that everything they earn should immediately be spent. Even kids making minimum wage should be taught the importance of putting money away for a rainy day, even if it’s just a few dollars at a time.
Never Explain the Difference Between Wants and Needs
One of the most important lessons that anybody can learn, whether that be adult or child, is the difference between wants and needs. If you act like every single thing in the world is something that is essential, your kids are going to get the same impression. By distinguishing between what our real needs and what are just merely wants, you set the foundation for your kids to make good financial decisions by being able to distinguish between the two when spending their money.
Make Talking about Money a Taboo Subject
It amazes me that so many families view conversations about money as taboo as conversations about sex. The reality is that both subjects should be able to be discussed freely among family members so that the kids aren’t misinformed about these important topics. You do no service to your kids by making money and finances a subject that should not be talked about at the house. The more open you are about money, the way it works, and the daily decisions that have to be made about it, the more comfortable your kids will be when it comes time for them to create their own budgets.
Never Give Any Financial Responsibility
There seems to be some parents that want to shield their kids from all their money problems. Since they have money responsibilities that they don’t enjoy, they feel that they are doing their kids a favor by not having them have any money responsibilities. This is a terrible assumption. It’s vitally important for kids to begin to develop money responsibilities and learn from their mistakes. If they are not given any financial responsibility, when they go out into the real world on their own, they are going to be completely clueless. The result will be that they will make huge financial mistakes rather than minor ones they learned from when they were kids.
Teach That What Others Have Matters
If you want your kids to constantly be chasing after the Joneses throughout their life, instill in them that what others have matters. One of the most important lessons anyone of us can learn is what makes each of us happy, and it isn’t money or stuff. When you help children learn what they love to do, they then don’t have to fall into the trap of believing that buying and having certain things will create happiness.
Teach That Brands Matter
When it comes to getting the most from the money you earn, understanding value is important. That usually means not buying the cheapest or the most expensive of anything, but rather the item that gives the most bang for the money. When kids are taught that brand is more important than value of functionality, they get a warped sense of what is important when purchasing anything. They believe that they are the Joneses and need to have the best of everything even when it may not be in their budget. Brands are not necessarily bad things, but to teach kids that is all that matters does them a great financial disservice.
Teach Being Rich Is Important
The impression that being rich is important is sometimes the unintended consequence that kids get from parents who are struggling with their own finances. This is especially true if these struggles cause continuous strife within the family. Kids begin to think that having a lot of money is important. While there is certainly nothing wrong with having a lot of money, it’s important that having the money is not the end goal. Money is simply a tool to help each person achieve their goals and should never be the goal itself. With all the commercialization that permeates the US culture, this is often easy to lose track of, but it’s one of the most important lessons about money that you can teach your kids.
Probably the most important realization to take away from this list is that actively taking steps to help your children learn about how money works and how to use it to benefit them the greatest is a set of skills that you as a parent need to teach your kids. If you default those lessons to someone else or try to hide them, the kids are likely going to end up being in far worse financial shape than if you were simply honest even about the money mistakes that have been made. Empower your kids to understand the basics of money and you will give them a gift that will serve them well their entire life.
(Photo courtesy of Brad_Chaffee)