No parent is perfect. Even I admit making some of these mistakes when teaching my daughter about money. Here are 9 mistakes that parents make when teaching their children about finance.
1. Keeping Quiet
The biggest financial mistake a parent can make is not teaching their children about money at all. If you want to give your children the tools to understand the concepts of money and grow their savings, you need to have frequent conversations with them. One way you can do this is by using money examples when teaching or tutoring your kids in addition and subtraction. Another great way to teach your kids is to read them these books shown in the Amazon links below. My daughter’s favorite book is “Just Saving my Money” by Mercer Mayer.
2. Study First
Financial Education is barely a thing in the U.S. school system. At best, you may take an economics class in high school or college, teaching you general information on the economy and the difference between a loan and a line of credit. Before you try to teach your children about money and finance, you should make sure you know what you are talking about. Teach them about compound interest, taxes, investing in retirement, and budgeting.
3. Don’t Assume
When talking to your children, don’t assume that they know the terms or money topics that you are talking about. Explain finance to them in a way that they would understand. Use their favorite hobby, industry, or TV show to try to explain financial concepts to them.
4. Lead by Example
Make sure you lead by example and show your children how you budget and save, and the rewards you can get from following financial concepts. If you keep buying things for your children without having them earn it, you are not leading by example. This is a great way to teach them about time and money. It takes years of savings to buy a nice car. It takes months of saving to upgrade your TV or phone.
5. A Time and a Place
It is not a good idea to teach your children about money when you are in a stressful financial situation. When talking to your children about money, make sure that you and your child are in a calm state of mind. You can talk to them about the positives and negatives of money, but try to avoid doing this when you are in a bad state of mind.
6. Investing for your Children
A surprising amount of people have not invested money for their children. With a 529 Education Savings Plan or a custodial account, you can invest and save for your children’s future. It is a good idea to have your kids next to you when opening these accounts. Let them choose some of the stocks, funds, or ETF’s so that they can feel involved in their own financial future. Betterment, Wealthfront, and M1 Finance are three popular long term investing brokerages where you can invest and save for your children. I personally use all three of these brokerages.
7. Allowances
We don’t give our daughter allowances. Instead, we make her earn her income through completing chores. If you give your children an allowance, they won’t learn how to earn their money. This teaches them the concept of time and money. When buying a toy, you have to remind them that they completed 4 weeks worth of chores to earn this toy. This will make them think about value and worth. Growing up, I never received an allowance. I was given money only on my birthday and I was taught to save my money in a piggy bank. My parents later opened a savings account for me and taught me how to fill out a deposit slip at the bank so I can save my birthday money.
8. Entrepreneurship
You see it all the time in movies – Lemonade Stands. Encourage your kids to learn about starting their own business by selling lemonade or snacks in the neighborhood. They will probably lose more money than they earn, but it will be a good lesson. Getting involved in Girl Scout Cookies is another great way to teach your kids about business.
9. Borrowing
It is important to teach your kids about borrowing money and that every time they use a credit card or take out a loan, they are borrowing money that they need to pay back with interest. They need to learn about the concept of bankruptcy and your credit score and how it can ruin their life if they are not careful and responsible.
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