Money Management

How Teach Your Child Financial Responsibility

As a parent you know how important it is to teach your children about right and wrong, how to share, the importance of education, the foundations for helping your child become a well-rounded adult. You spend plenty of time helping them with homework, taking them to sports practice or music lessons, reading books with them, taking them to religious services and more. However, for many parents, teaching your children about money and financial decisions can be an uncomfortable subject. It’s important to be cognizant not only about the lessons you are explicitly teaching your children, such as why it’s important to save money, but also to be aware of the lessons you teach your children in how you react to financial issues.

Children are watching the way their parents behave and will mimic these types of reactions in their own lives. Sometimes things that you think may be unimportant or small might be internalized by your child and used in their future behavior and habits. Being aware of the way you deal with financial decisions around your children can help you better prepare them for success.

1. Talk About Money With Your Children

children and moneyRecent surveys have found that roughly a third of parents feel that discussing financial issues with their teenage children is as stressful as negotiating the price on a large purchase like a home or a car. This level of stress about merely discussing financial habits can lead to parents simply choosing to avoid the topic altogether. It’s incredibly important to talk about money and your financial situation with your teenager. By including them in an open conversation about finances you are removing some of the taboo and mystery about money and are promoting an open dialogue. This can help provide the foundation for your child to speak openly with their spouse in the future about finances and work together as a team to tackle their financial goals.

One way to begin the conversation is to run through a rough budget of what your family expenditures are each month with your child and show them how you stick to your budget. During this process explain why budgeting is important and why you want to save money. By making money a comfortable topic in this way your child will learn to approach financial decisions from a logical perspective rather than an emotional perspective.

2. Define Needs and Wants Appropriately

needs vs wantsMany parents fail to convey to their children what things they need are and things they want are. You may think that by spoiling your child now and again that you’re just giving them things that make them happy, but you may be sowing the seeds of future impulse purchases and bad habits. One of the most financially difficult situations to climb out of is credit card debt and many times the reason that a person builds this type of debt is by not being able to appropriately designate what is a need and what is merely something they want.

The next time your child asks for an indulgence, take the opportunity to discuss the purchase with them and help them to decide whether this is something they must have, or something they want to have. You can set expectations by teaching them that simply because it is something you want does not mean you should not buy it, but it might be something you need to save money for over time rather than purchase immediately.  You can compare this with something you must have, like groceries or gasoline for your car. Try not to talk about discretionary expenses as things you “can’t afford” but as things you choose not to afford because they are not needed and can wait.

After you’ve had this conversation with your child you can use an allowance to help them better understand how to work, budget, and save for items they want. Whether it’s a video game, a new toy, or an event like tickets to a sports event you can teach your child how to differentiate between their wants and needs and how to work, by doing chores, to save money for their goals.

3. Deal With Bills and Debt Honestly

bills and debtsIt’s often easy to minimize your responsibility when faced with bills you don’t want to deal with. Taking an “us vs. them” attitude between you and your creditors is not only harmful for you, but for your kids as well. Taking responsibility for your bills and paying your creditors on time is important, and so is dealing with disputes over bills appropriately. When you get angry or upset over a bill and your children notice, they’ll get the message that this is the way they should respond in the future when they are in a similar situation. You may also relay that you are the good guy and the people or company you owe money to are the bad guys, which ultimately tells your children that you can get out of your obligations by merely ignoring them. Whether you owe money to your friends, family, or other creditors being calm and relaying the image of responsibility to your kids can set the tone for a healthy financial attitude. If you are faced with a bill that is incorrect, show your children how to handle a dispute maturely without becoming upset.

4. Avoid Conflict With Your Spouse Over Money

fighting over moneyOne of the most damaging situations, which can negatively effect your child’s perception of money, is seeing you fighting with your spouse about financial situations. Having heated discussions about finances is normal, but showing your child that money is a stressor that results in you arguing with your spouse can teach your child to avoid conflict by not discussing important financial decisions. Numerous studies have shown that children who were exposed to their parents arguing about money tended to have more credit cards with higher levels of carried balances from month to month later in life.

One easy way to avoid the risk of fighting about money in front of your kids is to schedule time to discuss big financial decisions with your spouse at a time when the children are out of the house, or have already gone to sleep. Set out a list of issues you need to discuss and give time to both sides to make their concerns known. By keeping a calm rational discussion about your next big expenses you can both avoid giving a bad impression of money to your child and can have a healthy discussion about your goals as a couple.

5. Don’t Try To Keep Up With The Jones’

material goods ethicsWe’ve all done it. We saw the new car, the fancy watch, a new purse or pair of shoes being shown off by a friend, colleague or neighbor and thought that you just had to have one too. You should be careful not to display jealousy over your friend’s new items because your children pick up on your cues. Sending the message to your children that material items are important enough to cause jealousy can relay that success is related exclusively to material goods. This can lead to negative financial behaviors such as taking on debt, failing to distinguish between needs and wants, and making other risky financial decisions.

Being conscious of how you react to and speak about the items you see your friends and neighbors with is the first step to setting a good tone for financial conversations. Discuss with your child the importance of being successful in terms of personal achievement, and that buying nice things comes with first achieving some because you worked hard. By relating to your child that money does not equal happiness, but that achievement and success is defined by your work ethic you can develop a healthy relationship between material goods and your child’s attitude towards financial planning.

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