As parents we want to do the very best for our kids. We want them to grow into capable and successful adults. And we want to prevent them from making the same mistakes that we’ve made.
We want our children to be happy and financially secure.
The difficulty in teaching our kids about money is that we often bring our own money mistakes and financial bad habits to the table. And we all know that when it comes to raising kids, “do as I say and not as I do” is not the most effective parenting technique.
So how do we overcome our own bad money habits and teach our kids a better way?
I certainly didn’t learn money management as a child, let alone a young adult. But this helped me realize the importance of teaching my son how to manage his money and not make the same mistakes I did.
I was a stay-at-home mom for the first few years of my son’s life. When my husband suddenly passed away, I had no idea how to manage the family finances. I simply didn’t know anything about personal finance. I had no income and very little savings. It took me years to gain the education necessary to finally feel financially secure again.
Are you a single parent? Visit 13 Steps to Take Control of Your Money – A Single Mom’s Guide.
I don’t ever want my child to feel financially insecure like I did. I don’t want him to struggle or accumulate debt he can’t get out of.
So how do we teach our kids the value of money and how to properly manage it? What signs of money struggles do we need to look out for and how can we teach them the strong financial skills and literacy that will help them succeed?
Here are three signs that your child will struggle with money, along with three things you can do to teach your child money management skills for a secure financial future.
3 signs that your child will struggle with money
Spending for the wrong reasons
I started giving my son an allowance as soon as he was old enough to start asking for toys and candy at the check-out aisle. This way, I never had to be the one that said “no”.
If he wanted those Pokemon cards at Target, he had to save up enough money to buy them himself.
As he grew older and began eyeing more and more expensive toys, he had to learn delayed gratification and spending prioritization. For the most part, I left him to decide for himself what was a “good” purchase and what was likely a waste of money.
But I eventually noticed his desire to spend money for the wrong reasons.
These included using money to elevate his social status or to buy friendships.
It’s a tough lesson to learn but if someone is hanging around because you have money, they aren’t your friend.
If you sent your child to the grocery store with $20 to buy a $5 loaf of bread, would they come back with $15 in change?
Spending that extra $15 is the adult equivalent of spending the extra $200 in your checking account that is left over at the end of the month. Nearly 80% of American workers live paycheck to paycheck. That’s one emergency expense away from financial disaster.
If you see signs that your child has difficulty sticking to a budget and often overspends without thought to the consequences, they are likely to join the majority of Americans that can’t get financially ahead.
Even worse, they are likely to abuse credit cards and join the 37% of American’s with consumer credit card debt. In April 2019, the US Federal Reserve reported that revolving debt has surpassed $1 trillion for the first time since the Great Recession of 2017.
It’s clear that overspending and accumulating debt is a major problem for many Americans. As parents, it’s important to recognize that these habits start young.
Impulsive spending happens when your child is looking for something to buy with the money they have rather than waiting to buy what they specifically want or need.
In the consumerist society we live in, it’s really difficult to understand the difference between a “want” and a “need”.
Help your child understand the difference and only spend money when they’ve planned ahead.
How to teach your child financial awareness and money management
The above list are all signs that your child may need to learn additional life lessons about money. But how do we go about preventing these habits and teaching better financial awareness and personal finance skills?
Give kids control of their money
The best lesson is a real-life lesson. Don’t just lecture and tell your kids what not to do. Instead, give them control to try it out for themselves.
Provide an allowance early and give them control to buy what they want. They will quickly learn to prioritize their spending and save for more expensive purchases.
They will also begin to learn the difference between a “want” and a “need”.
It isn’t always easy, but giving them control to buy that cheap knock-off nerf gun that you know will break in two play sessions will help your child learn how to make spending decisions. They will better appreciate what they have, and quickly learn how to determine what is an important purchase, and what isn’t.
An extra bonus is that you will no longer be the bad guy that is depriving your child of what they want. You won’t have your children begging and pleading for all the things they want while you’re shopping. It’s an empowering thing to simply remind your child that if they want something, they have full control to buy it themselves.
Let kids make money mistakes
Money mistakes as a child and teen are learning opportunities. Learning the natural consequences of a bad money decision is the best way for them to prevent the same mistakes later in life, when the consequences are so much greater.
Go a step further and provide your child with opportunities to make these mistakes. Give them $20 to go to the store and buy that $5 loaf of bread. See if they come back with your change or $15 worth of snacks and candy.
A $15 conversation about impulse buying and overspending money they don’t have is so much cheaper than $7,000 in credit card debt at a 17% interest rate.
Now is the time to make mistakes and learn from them.
Openly discuss money matters with your kids
As your child learns about money and makes mistakes along the way, find every opportunity to openly discuss money matters.
Share your own money management style and overall financial plan. If you have debt, talk about it and share what mistakes you have made. If you are saving for something, share with your children how you plan to achieve your financial goals. Don’t let the topic of money feel like taboo. Personal finance is not taboo, it is a topic to feel comfortable discussing and confident in managing.
Financial goals can also become part of the family discussion. If you are all planning a trip to Disney Land, you can create a goal chart with how much money you need to save. The adults are responsible for saving the majority of the trip but you may find that your children want to save a portion of their allowance for spending money. Saving can become a family activity that is motivating and has a great reward once achieved.
Learn how to have family money conversations: Marriage and Money: How to Talk to Your Partner About Money
Life lessons about money
I love it when my son makes a financial mistake. It’s the perfect opportunity to have a long conversation about money. It allows him to learn what not to do later in life.
His best money mistake yet has been overspending $200 that was mistakenly added to his camp debit card. He was 13 years old and going to a week long summer camp that offered extra snack and merchandise purchases through a pre-loaded, camp specific, debit card. We had discussed and planned ahead exactly how much money he would have for the week and reviewed the best ways to budget his funds. Due to a miscommunication, extra money was added to his account.
Instead of sticking to his budget, he discovered his unexpected windfall and went gangbusters with it. He gained popularity by purchasing snacks and candy and “hosting” game night in his dorm. Additionally, if a fellow camper had a strict budget, he would buy them what they wanted.
At the end of the week, he was out of money and didn’t have any better relationships than anyone else around. In fact, he hadn’t gained anything other than $200 of debt.
This experience provided the opportunity to have a long discussion about what money can buy, and what it can’t. Friendships are not purchased and are not reliant upon one’s net worth or income level. Generosity and giving is highly rewarding, at least when it isn’t self-serving or for social gain.
My son also learned how to get creative and find money earning opportunities so that he could pay off that $200 in debt he had accumulated.
When I was widowed, I was faced with the sudden and unfortunate realization that I didn’t know how to manage my own money. My parents had always taken care of things for me, paying for college and living expenses. I then married right out of college and my husband managed all the finances. I simply had no experience or practice.
Money is viewed culturally as a private matter that isn’t to be discussed openly. We don’t learn personal finance in school and our parents certainly don’t share their financial goals and struggles. Even worse, as kids we often pick up on the fact that money is often stressful and the cause of anger, resentment and arguments.
When I was faced with years of feeling financially insecure, I was driven to learn everything I could about personal finance. And I came to the realization that I never wanted my son to go through what I did. I don’t ever want him to battle with debt or view money as something evil.
Instead, I look for any opportunity to openly discuss my finances and give my son the financial control to make his own money mistakes.