Whether your bills are paid in full at the end of every month or you have to do some strategic budgeting to get creditors off your back, there's a good chance you have some less-than-perfect money habits. As a parent, they don't begin and end with you; they affect your children too, and for a lot longer than you may realize.
Most young adults are entering the world without the basics of financial literacy. Many are taking on massive debt in the form of student loans and doing so without understanding the principles of interest, or saving for emergencies and the future. Though schools have worked to increase financial education among the young, the evidence suggests these classes alone are largely ineffective and must be supported by good financial practices at home, something that doesn't always happen.
Where financial education fails
"On one hand, all education decays with time. But we speculate one of the major problems with financial education is what goes on when kids leave the classroom," says John Lynch, director of the Center for Research on Consumer Financial Decision Making at the University of Colorado Boulder. "Everyone has opinions on money, and those opinions don't always match what they're learning at school."
Money lessons taught in school are largely a use-it-or-lose-it scenario, Lynch says. Much of the responsibility lies with you, the parent, to ensure the lessons sink in, no matter your bad habits or struggles with money.
The potential for parents as teachers
Children from ages 8 to 17 pay close attention to household money issues, but parents are largely dropping the ball when it comes to talking about them, according to a 2014 study in Communication Research Reports. Instead, moms and dads keep quiet when there are struggles with things such as debt and income.
"Children can learn from what they are told," says Paul L. Harris, a Harvard University psychology professor and author of "Trusting What You're Told: How Children Learn From Others." He suggests that parents don't have to be perfect angels to impart worthwhile lessons to their children.
"There's no reason to assume that children will automatically copy what a parent does, especially if the parent concedes that they may not have made wise choices," he said by email.
Thus, a hard look at your own bad financial habits, paired with transparency and good communication, could give your kids the financial lessons they'll need long into adulthood. So what are common habits to avoid and how can you ensure your children don't adopt them as their own?
1. Overestimating your financial acumen
First, admit your mistakes and be willing to learn. If you don't know the best practices for using credit or how to make a budget, learn with your child.
"I think people are not really good at knowing whether they are smart about money or not," Lynch said by telephone. "It's easy for a kid to go home to parents who may have some pretty bad financial habits and don't even realize it."
2. Overspending
Whether you misuse credit cards or prioritize wants over needs, spending more than you have is a sure recipe for insurmountable debt and poor lessons for the kids. Set a budget and make them part of it. Be willing to admit when you make mistakes with your money and talk with them about what you could do better.
3. Not saving
Not everyone can afford to save and you may not have an emergency fund. But even if you set up a savings account to pull $50 from your pay every month, you can teach children an important lesson. They need to learn to set aside money for a rainy day and retirement too.
4. Ignoring bills
Got debt? Join the club. But even if you can't afford to pay outstanding bills, ignoring them isn't the answer. Involve your children in a discussion about how you got to this point and about handling responsibilities. Then call the creditors and try to make payment arrangements or get more time to pay. Children should know that sometimes we just have to face the music when it comes to cleaning up financial mistakes, even when that initial call can be gut-wrenching.
5. Fighting about money
Family fights about money are some of the most harmful. When these arguments go on in front of the children, the damage is multiplied. Both parents should learn to talk calmly about money issues; show the children the benefits of cooperative problem solving. If you can't tackle this bad money habit as a couple or alone, don't be afraid to seek professional help.
6. Living paycheck to paycheck
Sometimes bad financial habits are born out of necessity. But this doesn't mean you don't have important lessons to teach. Research suggests children in lower-income households suffer the most when it comes to becoming financially literate. Use these struggles as lessons for your kids rather than staying mum, so they're more likely to make better choices in the future.
As parents, there's probably nothing you want more than for your children to do better than you have in life. Helping them learn from your mistakes is part of the process.
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