Believe it or not, you are personally responsible for every financial decision your children make throughout their entire lives! That’s not even meant to be any eye-popping tag line, I mean it in the most literal sense…you’re responsible for all the good and bad decisions that your children make from birth until death. T. Rowe Price actually completes a rather in depth annual survey on the financial habits of parents and their children, and it was determined that parents have the greatest influence on their children’s financial habits, and those habits don’t end when they leave the nest. Believe me, I can attest to the fact that you carry those financial habits with you for life! I’d say nurture beats nature to death on this topic.
My parents got a divorce when I was really young, and neither one had much money, though my father was much more of a spender. That’s a thinly veiled way of saying that he carried a ton of debt throughout his life. So much so, that he filed bankruptcy not once, but twice. I’m not knocking my dad, just letting you know where I went astray. I spent my early working years spending every penny I earned, and that lasted until my college years when I applied for my first credit card. Once I had that credit card I stopped spending every cent I earned and began spending a ton of money I HADN’T earned, and so went the vicious cycle. I finished college about $30,000 in credit card debt despite the fact that my parents paid my entire college tuition…disgusting, right?
You might ask, “how could one possibly rack up $30k in credit cards as a college student”? Quite simple actually! I leased all of my cars, and typically went over mileage, turned them in early despite penalties, and basically always had a car that I had no business driving, financially speaking. Then queue up the “you only live once” motto (yeah I was saying that long before YOLO existed) and I convinced myself to take multiple vacations each year. I believe in the 5 years I attended school (let me guess, you did it in 4?) I had gone to Cancun twice, Los Angeles three times, Chicago about a dozen times, and then sprinkle in New York, Toronto, and miscellaneous….presto, I’m on top of a mountain of debt! I kept adding to that mountain of debt with routine bar nights each week, new clothes, and the occasional splurge…as if my entire life wasn’t splurging.
I bring up my mistakes to show you, maybe even to warn you, that it is your responsibility as a parent to teach your children financial responsibility! In that same T. Rowe Price survey it was determined that 74% of the parents surveyed were reluctant to discuss finances with their children. The two biggest reasons for their reluctance was that they were too young to understand, and the other was that they had more important things to discuss with them. First of all, don’t tell me teenagers are too young to understand money, they sure as hell do a good job of asking for it and spending it. And don’t think just because you force them to earn their own money that is enough to teach them responsibility, it’s also about how they save, spend, and invest that money that determines their financial futures. Now the argument about having more important topics to discuss irks me even more. The last time I checked money was the number one cause of stress, divorce, and suicide. Those all seem like pretty heavy hitters to me! Not to mention, I’m pretty sure that we are able to discuss more than one important topic with our children.
Ok ok, so if I get off my soapbox for a second I can explain some ways that you can teach your children the rights and wrongs of dealing with finances. First, an allowance is key to learning about money management. They need to make and earn money if they are going to learn how to handle it responsibly, that’s just a no-brainer. Teaching them to budget is important, but not as important as how to stick to that budget. The cornerstone of personal finance is to spend less than you earn. Make them pay for their own entertainment activities, and make sure they save some of their earnings to boot. Personal sacrifice is a lesson that is never too early to learn. Next, show them your finances! I never understood why people are so guarded about money. We all seem to place this emphasis on being secretive with how much we make, how much is in our savings accounts, etc. I’m not asking you to divulge your finances to the masses, but showing your kids how much you make can be beneficial in more ways than you can imagine. It also doesn’t hurt to show them your bank accounts, investment accounts, and credit card statements. Even if you make poor financial decisions you can teach them based on your mistakes. The only real mistake you can make is by pretending like your finances don’t exist. That’s really about it, other than a few tips here and there, it doesn’t take much more than that to educate your kids on financial accumen.
What do you think…is it your job as a parent to teach financial responsibility? Are you doing a good job of it?