Managing money can be very complicated and difficult for adults. But what people with kids may not realize is that the decisions they make can have a big impact on their children’s relationship with finances.
“Children observe and soak up everything, including how you use and talk about money,” said money and budgeting expert Andrea Woroch. “In fact, family attitudes toward spending and saving and mom and dad’s financial habits directly shape how children will value their own money in the future. It’s critical that parents understand how their own habits will influence their children and that they need to model the behavior they want their children to adopt.”
While kids can absorb many beneficial financial lessons from their parents, they also tend to take in less helpful ones as well. HuffPost asked Woroch and other financial experts to break down the kinds of harmful money messages kids learn from their caregivers ― and to share the types of approaches parents should try instead. Read on for their insights.
1. Money is a taboo topic.
“There’s a taboo out there that talking about money is bad, especially if you’re in debt, and that it’s shameful,” said Woroch. “When you don’t talk about money in your own household because you don’t want your kids to worry or because you don’t think it’s important that they are involved, you’re teaching your kids not to talk about money, and you restrict the opportunity for learning valuable money lessons early on.”
Tim Sheehan, co-founder and CEO of the family-focused financial literacy app Greenlight, echoed this sentiment. He believes that not discussing money at all with children leaves them in the dark when it comes to understanding what money means, how to get it and the right ways to manage it.
“Parents can start by helping their kids learn the ropes of decision-making,” Sheehan said. “Start small by explaining why you choose to spend money on groceries instead of takeout.”
Because so much of money management today happens on cellphone apps, children don’t observe things like bill-paying the way they did in the past. So parents need to “perform” money a bit to make sure their kids see them engage with finances and feel empowered to develop opinions about it, rather than simply getting lectured on the topic.
“I ask my children questions about money, which establishes that money is a thing we talk about,” said financial therapist Amanda Clayman. “These talks also demonstrate that people have questions without easy answers when it comes to money, that this is something you don’t have to be ashamed of, and that I’m a trusted source you can come to for help making decisions.”
2. Money is always around, no matter what.
The experts who spoke to HuffPost emphasized the importance of helping kids understand that people earn money from work and that it doesn’t simply “grow on trees.”
“It can start with something as simple as a chore,” Sheehan said. “This helps kids make the connection that, ‘If I do this work, then I’ll earn money.’ Then, kids can set a saving goal and work towards it. It teaches them about making real-world trade-off decisions instead of giving in to instant gratification.”
In addition to teaching kids about earning money, Sheehan believes that chores like hosing down the car or taking out the trash can help kids become generally more responsible and prepared for adulthood. As for families that don’t pay for household chores, they can look to neighborhood jobs or other ways to demonstrate that money is earned, not given.
3. Financial literacy is just a grown-up thing.
In addition to not talking about money, many parents don’t let their children gain experience managing money. But there are countless age-appropriate ways for kids to learn financial literacy and practice these skills.
“Start a small business,” suggested financial expert Kim Kiyosaki. “It’s key to learn the language of money. Kids can learn things such as income and expenses, profit and loss, cash flow, inventory, marketing, and the value of their time. This is hands-on, and it’s fun. And the learning is tremendous.”
She recommended businesses like mowing neighbors’ lawns, selling a product online, opening a lemonade stand, shining shoes, or even finding lost golf balls on local courses, cleaning them and selling them to golfers.
Kiyosaki shared other ways to teach kids about money, like buying a few shares of a company familiar to your children (like Disney) and letting them watch the price fluctuations and learn about the stock. Another approach is buying a 1-ounce silver coin. Or, you can leave it up to your kids.
“If your child wants a new toy or gadget, ask them, ‘How could you earn the money to buy it?’” she said. “Let them get creative.”
“You can’t teach your child the difference between needs and wants, or even the value of saving, if you are continually swiping a credit card for everything.”
– Kumiko Love, financial counselor and creator of The Budget Mom
4. Money talk only evokes negative emotions.
“Children are wired to be attuned to the emotions of their caregivers, so they start to notice associations,” Clayman explained. “They might notice if conversations about money seem to be tense or if their parents get upset and start talking about money when they ask for something. These form an emotional context that kids tend to grow with and bring into their financial lives as adults.”
While money is understandably a source of anxiety for many people, it’s important to be aware of how it affects you emotionally and make purchases with that knowledge in mind. For parents, acknowledging and managing your emotions around finances can help you pass on healthier attitudes to your children.
“A lot of bad spending behavior is related to a need to emotionally self-regulate,” Clayman said. “You’re feeling stressed, and your brain is like, ‘I need this thing!’ It becomes an obsessive thought. But you can recognize that you’re having a feeling, which is triggering you to want to buy the thing. So ask, ‘How can I come back to my intention for my money and soothe myself through this feeling in a way that doesn’t involve shopping?’”
5. Impulse buying is the norm.
Woroch believes a big mistake parents make is giving in to their children’s desires for shiny new objects while running errands such as buying groceries together.
“If you’re constantly buying your child a toy, you’re passing on the habit of impulse shopping,” she said. “Instead, think of this as a teaching moment. When my daughter asks for something new, I talk to her about why we went to the store in the first place and that toys were not on our shopping list. If there’s something she really wants, we talk about how that can be a Christmas or birthday gift and that we will keep a list of her wants to consider in the future. The occasional splurge is OK, just don’t make it a habit.”
Jim DeGaetano, president of Diamond Wealth Advisors and author of the “Larry the Bunny Saves His Money,” emphasized the importance of establishing solid money habits early by teaching kids self-control in “an ‘I want it now’ world.”
“As parents, we want to provide the best for our kids and give them the world, but there must be a balance in our approach, or otherwise they will grow up with unrealistic expectations that they can and should be able to afford whatever they desire,” he said. “It is OK to tell your kids that you cannot afford something and that you need to save up for a particular purchase.”
6. Wants and needs are the same thing.
Another big part of financial literacy is teaching children the difference between needs and wants ― things like shelter and healthy food versus new toys and candy. In addition to talking about the difference, parents can model it.
“You can’t teach your child the difference between needs and wants, or even the value of saving, if you are continually swiping a credit card for everything,” said Kumiko Love, a financial counselor and creator of The Budget Mom. “One of the biggest mistakes we can make as parents is not improving our own habits and skills around financial management.”
Although it’s important to separate wants and needs, Clayman cautioned against shaming children for their wants.
“What often happens is a child says, ‘I want this $100 sweatshirt,’ and a parent is like, ‘That’s so selfish of you to want that. That’s a waste of money’ ― as opposed to just, ‘That doesn’t fit in our budget,’ or, ‘We put our money toward other things,’” she explained.
“One is an empowering message about your power to make decisions about money as an adult, and the other is making the child feel wrong for desiring something,” Clayman added. “That leads to a lot of $200 sweatshirts in your child’s future.”
7. Looking for cheaper alternatives isn’t worth the time.
Whether something is a want or a need, odds are there are ways to get it for a lower price. At the very least, it’s worth checking. This is a lesson Woroch believes many parents are missing the opportunity to teach.
“Guide your children to make savvier shopping decisions, such as shopping at a local consignment store for a coveted pair of jeans to make them more affordable,” she advised, adding that kids and teens can also learn to look for coupons or discount codes online.
“You can even turn shopping into a game, having them look for cheaper options and then use a cash-back app like Fetch Rewards and have your kids take pictures of your shopping receipts to earn points good towards free gift cards to stores like Amazon or Target,” Woroch suggested. “Then let your kids redeem those gift cards to get something they really want.”
8. Your financial situation is fixed.
“Families who are on a tight budget may talk about what they can’t afford often instead of trying to figure out how they can afford it,” Woroch said. “This limiting view gets passed down to children who may feel like they too are stuck in the income they earn and never break the rut. There are so many opportunities to earn more money, like taking on a side hustle.”
Kids can understand the dynamic nature of finances by gaining hands-on experience managing their own money. Teens might learn the consequence of spending decisions, like how a night out at the movies might delay the purchase of a game they’re saving for. Younger kids can get similar lessons from playtime.
“When I would play ‘kitchen’ with my daughter, she would be the restaurant owner, and I would have play money to purchase the wonderful food she was ‘making,’ but sometimes Daddy did not have enough money to pay for it,” DeGaetano explained. “My 4-year-old son loves his cars and trucks, and sometimes the trucks had to go over a toll bridge, and I was the operator. The ticket to pass through the bridge cost money.”
“This may sound simple, but kids learn sequentially through observation,” he added. “The absence of any dialogue or involvement about money with your children will lead them to make their own views and suggestions, which will come from outside sources such as online advertising, which very rarely promotes saving money first.”
“Battling around who’s correct or incorrect reinforces rigidity and that there can’t be compromise, that both people can’t have a legitimate point of view. This a destructive misunderstanding to have about money and how it works.”
– Amanda Clayman, financial therapist
9. Money is about secrets and lies.
“When kids see parents engaging in behavior that they’re keeping secret, that is an expression of shame,” Clayman noted.
She pointed to people who hide certain types of spending from their partners, or even tell their children, “It’s our little secret.” While they may say they don’t want to upset their partner or know their partner wouldn’t agree with the purchases, the bad message they send is that they don’t think their partner could understand that part of them, so there’s a limit on intimacy and the ability to openly own who they are.
Another issue stems from when children ask questions about money that trigger their parents or make them feel uncomfortable, so they shut it down ― like, “How much money do we have?” or, “How much money do we make?”
“There’s nothing inappropriate about that question. It’s a natural thing to be curious about,” Clayman said. “It doesn’t mean a parent is under gunpoint, compelled to answer. But just take a moment and say, ‘I hear your question, I want to answer it, I have some concerns about how we talk about that and why you want to know.’ Or even just asking, ‘Why do you want to know that?’”
These clarifying questions give parents more context, and they do not have to respond right away. Instead, they can say, “This is something that’s important, so I’m going to take some time to handle this one.”
10. Credit cards are bad.
Woroch said a money mistake many parents make is “telling [their] high school or soon-to-be college students that credit cards are evil.” Instead, she recommended parents teach their children how to use credit cards wisely to build credit.
“In fact, you can get your child a card with a small balance and have them help you manage the account every month so they understand why paying the bill in full and on time is important and that you don’t charge things you can’t afford,” she explained. “Otherwise, they may fall into the trap of getting a card when they’re living on their own and dig themselves into debt, afraid to tell you about it since you cautioned them against it.”
Financial adviser Nicola Smith Jackson believes teens can also understand the meaning of a credit score and the importance of maintaining a good one.
“A credit score of 740 or above can be a powerful tool to build wealth when used responsibly,” she advised parents to explain to their adolescents. “A great credit score makes life less expensive by reducing interest rates on purchases like cars, homes, lines of credit and credit cards.”
11. Saving is everything.
While the importance of saving, rather than constantly spending, is a good lesson for kids, parent shouldn’t drill it in as the only thing to do with one’s funds.
“The average interest rate today for a savings account is 0.05%. In my parents’ time they could save their way to retirement. Not today,” said Kiyosaki. “Instead of saving money, why not teach our kids how to grow the money they make by investing their money? Having their money work for them.”
She advised teaching kids about stocks and mutual funds, but also other ways to grow their money like starting a small business. Investing a small amount of money also offers kids the opportunity to learn by trial and error.
“The problem with avoiding mistakes is that kids come out of school scared to death of making a mistake. In reality, the way human beings are designed to learn is by making mistakes — and learning from those mistakes,” Kiyosaki explained. “So, reading and studying is part of learning, but it’s been proven that the best way to learn and to retain what you learn is by doing the real thing.”
12. Money rules are rigid and universal.
Every family and individual is different when it comes to financial planning. The rules and guidelines that are helpful for some won’t work for others, so it’s best not to act like one particular approach is sacrosanct.
“Battling around who’s correct or incorrect reinforces rigidity and that there can’t be compromise, that both people can’t have a legitimate point of view. This a destructive misunderstanding to have about money and how it works,” Clayman said.
She advised parents to figure out what’s helpful for their children ― whether that’s giving an allowance for household chores or keeping chores separate from money management. The important thing is simply being transparent about what your decision is and why.
“I think it’s really helpful for parents to help children see that they can hold space for those kinds of dilemmas and identify their values and what’s important to them and how money is helping them live those values or getting in the way,” she said. “Rigid ideas of right and wrong things to do with money is an unhelpful framework. We face money dilemmas and take on risk in our financial choices all the time. We take on student loan debt or move to an expensive city on an entry-level salary. But that’s an investment in your future and the kind of life you want to live.”