The Financial Habits You Owe Your Kids
The parental Bank of Yes is bad for them, and for you
Taking the path of least resistance is often a strategic parenting choice to just get through the day. You agree to let the kids do something, or you agree to pay for something, because to say no, and explain why, can trigger discussions/arguments you just don’t have the energy to navigate in that moment.
The high cost of avoiding the money lessons
What can be a practical response in the here and now can still be a colossal parenting fail.
Which you sorta know in the back of your head, right? A recent survey found that fewer than three in 10 people said their parents taught them basic money skills. If you fell into the more than 70% who didn’t get that crucial help, any chance it led to some costly mistakes as you figured things out as an adult?
With a little work and resolve, you can avoid leaving your own kids similarly clueless.
Moreover, being the Bank of Yes when your kids are young increases the odds that once today’s urchins are fully grown they might need to financially support you. Spending on them and failing to robustly fund your retirement savings could leave you broke and desperate through a retirement that could last into your 90s.
How to have the money talk . . . on an ongoing basis
More than 75% of parents recently surveyed by T. Rowe Price said they think schools should teach basic money management skills. But very few middle and high schools do. So it’s on you.
A simple exercise to start is to consider what you really wish you had learned earlier. And remind yourself of the money-lesson wins a parent or grandparent instilled. Looking for more tangible advice on how to pull this off? The book “The Opposite of Spoiled” is overflowing with relatable advice.
My Rate.com News & Analysis colleagues and I have written on a wide variety of parent-kid financial matters, from how to avoid having your 25-year-old unemployed and occupying your basement, to the perils of cheating, how to find scholarships, the virtues of community colleges, special advantages of boys headed to college, saving money by sending kids to college overseas, and how to borrow smart, or not at all, for college.
All of these lessons require your resolve. It’s time to suck it up, and start teaching. By example. And by setting expectations. This is likely the hardest part. In the same T. Rowe Price survey, 80% of parents were clear they know it’s important to teach the money stuff, but only 40% said they have no qualms about stepping up and into the parental role of personal finance educator.
When it comes to teaching by example, this is where checking your own penchant for lifestyle creep is going to speak volumes. Buying the car you need, not the more expensive one you’d love to have (and explaining the choice to your kids as you make it). Skipping the extra bedroom on the new home (again, explain the choice). It’s no favor to protect your kids from the harsh reality of financial decisions.
Imagine a family photo 10, 20, 40 years from now
We tend to be disconnected from our older, future-selves. And that makes it especially hard to choose something today that will not pay off for years. For a workaround, consider making a conscious effort to think ahead 15 or 20 years. Start with your kids: In terms of money skills, what choices do you hope they will make, and what do you pray they will avoid? Without the conversations and teaching today, how are they going to get there?
Also think of yourself 15 to 20, 40 years from now. This is not selfish. It is vital for the long-term wellbeing of your kid. Where this can upend everyone’s financial wellbeing is around the cost of college. Six in 10 workers today, who have what they consider a serious debt problem, say the fact that they borrowed to send their kids to college has meant they have had to reduce or stop saving for retirement.
Again, in the here and now that might seem like a tradeoff you want to make or think you need to make to give your kid the opportunity to excel. That’s your own false narrative. Choose as a family to seek out a school where the net cost to attend college for your family will not be a financial hardship. And that means thinking very long and hard before a parent borrows. (Federal student loans are a solid way to help pay for college. Federal PLUS loans for parents can be dangerous.)
By not borrowing, you retain the ability to keep saving for retirement. That is going to be a big help to your kids. The last thing they need as adults raising their own family is to need to help you out financially. They will, of course, do just that if necessary. But by focusing on your long-term security, you gift them a future where they don’t have to worry about your financial security.