How Parental Financial Habits Impact Your Children’s Financial Education

How Parental Financial Habits Impact Your Children’s Financial Education

Parental influence is the most powerful factor on your children’s view of money and the development of spending and saving habits. This can be a challenge considering the average household has $15,863 in credit card debt, according to recent Federal Reserve Statistics. Add a low savings rate and parental influences can lead to financial troubles rather than responsible money management.

Poor financial behaviors parents have and their impact on the children they raise:

Parents who don’t talk about money. In previous generations money and politics were considered taboo topics of conversation and this can lead to a lack of valuable instruction for your child. Finances cannot be learned just by watching. Your children cannot derive your motivation and thought process for spending without a conversation about how you arrive at financial decisions.
If children do not have a sense of why you spend money in certain ways, they will not understand basic principles of budgeting and living within a budget.  It’s one thing to tell a child to spend money wisely and save for the future. It’s entirely another to say, “Let me show you how this works in our family.” Even if it’s uncomfortable those conversations are vital teachable moments.

Overspending and living without a budget. Parents who do not discuss the family budget or operate the household without one have a harder time regulating spending. Children want every new “thing” they see, even if they don’t need it. When you respond positively to most requests, children get the impression money is printed from an ATM and don’t understand the value of money and how it is earned.

Money is finite and spending decisions should be made based on family priorities. Even if you can afford to purchase the things they ask for, it may not be the best decision for their financial growth. Teaching children to save and wait for things builds value and creates skills like planning, saving and basic budgeting.

Frugal Living is often seen as the right way when it comes to managing finances. Unfortunately children raised in households where luxuries and wants are never obtained, can grow into adults who overspend to compensate for feelings of deprivation they experienced in childhood. The other habit commonly seen is overspending on their own children. The now adult child does not want their children to suffer like they did. This can be a powerful pull towards overspending.

Parenting Best practices

Even if you do not feel you know enough about financial matters to teach, as a parent, your influence can have a lifetime impact on your child’s finances. As with most things a balance must be struck between spending and saving to develop healthy financial habits. The better you emulate these skills and discuss them with your children, the better off they will be. They can learn from both your mistakes and your successes.

Children can gain a realistic view of how far income goes, how to live with whatever they currently have, and how to make the most of that income. Living within your means may require frugal living. There are also times when spontaneous spending is necessary. Discussions with teenagers about the household budget and understanding why you spend the way you do, will develop a good example which can improve their financial management skills as they reach adulthood.