When it comes to teaching your children and teenagers about money, there is simply no one right way. There are, however, things you can do to guide your children along a path and empower them to learn good financial habits from an early age.
And sometimes it’s easiest to learn from our mistakes, so we’ve compiled a list of the top 5 money mistakes parents make. We’ve all made them, so we’re not judging, but like telling your children to eat their greens we’ve compiled this list for the good of all parents (including us).
1. Trying to Keep Up with the Joneses
We’re all familiar with that feeling when growing up and seeing friends receive lavish gifts such as the latest toy, gadget or outfit from their parents even when it’s not a special occasion. It’s difficult to avoid comparing with others and your children will naturally do the same. If you’ve caught yourself giving gifts to your children because their friends have them, don’t worry – most of us have been there at some point.
However, if they get used to a life of instant gratification, it will be pretty tricky to change this mindset as they get older. Your children’s ‘pester power’ is strong, but your willpower needs to be stronger. When you do buy them gifts, understand your motives and make sure your children understand it’s not because they pestered you into it!
2. Using Credit Cards Without Explaining How They Actually Work
Credit cards, or ‘magic cards’ as some children (and adults!) may call them, can be a difficult concept to teach your children and teens but it’s a lesson that you want them to grasp before it’s too late. “I’ll just put it on the credit card and pay for it later” is a terrible message to send to them if they don’t understand the implications. After all, we don’t want to communicate to our children that they can buy things without worrying about paying for them.
To close the loop, make sure they understand that credit cards serve a purpose of earning extra rewards if you pay off the balance at the end of the month. As they get older, subjects to cover when talking about credit cards include explaining good debt versus bad debt, only buying things you can afford, what interest means and why it’s important to manage it.
Your credit card is not limitless and certainly not as magical as much as we’d all like it to be.
3. Telling Your Children “We can’t afford it” or “You don’t need it”
It’s all too easy to tell your children “we can’t afford it” or “you don’t need it’” but this may not be the most helpful response and could lead to confusion when you ‘can afford’ to buy essentials like food, putting petrol in the car or paying the bills. After all, they may not see these things with the same level of importance as we do!
Teach them that money is finite by involving them in some family financial decisions. You could explain that your ‘entertainment budget’ (which may include but is not limited to toys, gadgets and games) is a certain amount for the month and together you must spend it wisely. By building the basic financial understanding of ‘budgeting, saving and spending’, your child will grasp that there is a guide to spending money and that the family needs to follow it together.
And while you may have a household budget, you could encourage your child to earn and save up for what they want separately such as giving them chores or tasks to complete – this will teach the valuable virtue of patience and give them a greater sense of appreciation when they do spend their pocket money.
4. Keeping Spending Secrets
“This will be our little secret” or “Don’t tell Daddy about this” are all too familiar phrases in some households across the UK. While parents think they’re not doing anything harmful, children will naturally infer that telling fibs – whether it is financial related or otherwise – is a good solution. And while you’re not intentionally being deceptive, promoting this fibbing - especially when it comes to money - could add up. By setting a good example and being transparent about money to your family, your children will take your lead.
5. Delaying Money Discussions Until Your Children are Older
If left to their own devices, it’s likely your children will spend all their pocket money on toys, online games and new clothes. Of course, they’re young and have a lifetime to worry about money but if you don’t encourage good money skills early on, it’ll be more difficult to get them into a budgeting routine as they get older.
The sooner you talk to your children about money, the better. Don’t wait until they’ve finished high school to explain the importance of budgeting or saving as chances are, they’ve already adopted some bad money habits elsewhere.
Any activity that involves money, or the exchange of value, can be used as an opportunity to teach your children a money lesson. Many supermarkets now publish unit prices to help customers compare, e.g. cost per 100g for example. Get them involved in comparing products and make it an open discussion as to what is the best value for money item to purchase.
When it comes to teaching money management and financial responsibility to your children and teenagers, it’s great to start the conversation early. And it’s ok to introduce them slowly to budgeting, saving and spending responsibly but don’t wait until it’s too late. Try to avoid some of the pitfalls we’ve listed and you’re on the right path to help your children handle their money in a responsible way.
Do you have any money mistakes to avoid you’d like to add to this list? We’d love to know!