Mistakes Parents Make With Kids And Money – Part 1
My parents came to the United States with practically no possessions and very little money. They had to take odd jobs just to scrape by and could barely afford to have a roof over their heads. Every morning my Dad had to carry 2 buckets of water with outstretched arms up a mountain barefoot in a snowstorm to the water well a mile away. Okay, my Mom and Dad may have exaggerated some of their hardships but the fact is they didn’t have many luxuries growing up.
Because my parents lived a difficult life, they did their best to make sure that I had a fun and memorable childhood. In doing so, they always tried their hardest to provide me with everything a kid could want and need. In fact, they tried so hard that I kind of grew up a little confused. What could be so confusing about a happy childhood?
Photo By Orphan Jones
I was confused mainly about money. Because my parents never let me get a job, I never had too much money lying around. Every time I needed some cash, I’d have to ask my parents for it. Can I get 10 bucks for the movies? Can I get 20 bucks for some food? I need 50 bucks for some new clothes. I’d ask and more often than not I would get what I wanted. So what was so bad about this?
Basically, I had no concept of the value of money. As a parent, I can see how it’s an easy trap to fall into. You want your kid to have a good childhood so you buy stuff to make them happy. But what you are also doing is setting them up for bankruptcy later on in life. Here are a few common mistakes that parents make with their money and kids.
You Use Your Credit Card In Front Of Your Kids
Whenever my Mom and I went shopping, she’d always whip out the credit card to pay for everything. We would be at the cash register and I used to always stare at this strange piece of plastic in disbelief. You mean you just show the clerk this strange object and you get to walk away with all of this merchandise for free? Not only do you get to keep the things you bought, you even get your plastic back. You get a whole of bunch of stuff for nothing! Sounds like a good deal to me!
Can you see the problem here? I had absolutely no connection with the items that I was walking away with. I had no clue how much things cost or how many hours it took to make the equivalent amount of money. I used to love shopping because in my mind everything at the mall was free. Looking back, I had fond memories of shopping with my mom, but what was the ultimate consequence?
Now let’s fast forward to my freshman year in college when I got my first credit card. I remember going nuts at the Stanford bookstore right after activating my card. I purchased a laptop, assorted sweatshirts and clothes and a ton of school supplies all in the span of 20 minutes. In fact, I charged so much that I exceeded my credit limit that day (thank goodness for credit limits). It wasn’t until I received my bill that I realized how much money I had spent.
But what’s this? I only have to pay 20 dollars and I can continue to use the card? Once you get that first bill, it’s extremely tempting to just pay the minimum balance and continue spending. For many kids who have no concept of money, that’s exactly how the snowball effect begins.
It’s extremely difficult, but as parents, you should try your hardest to not use credit cards in front of your kids. If you have to, make sure you let them know how much you’ve spent and emphasize the value of money in doing so. I think if my Mom emphasized the magnitude of money spent on each of our shopping trips, I probably would’ve had a better concept of value when I got my first credit card.
You Buy Your Kid Stuff Because Other Kids Have It
I grew up in an area that had a huge diversity of wealthy families. Some kids were filthy rich, drove BMW’s and sports cars, and wore designer clothing that was ridiculously expensive. Other kids were dirt poor and couldn’t afford cars or fancy clothes at all. My family fell somewhere in between.
In my mind back in high school, I used to think that there was a strong correlation with the clothes that you wore and the car that you drove with how popular you were with the other kids. All of the rich kids with their flashy jewelry and fancy outfits really stood out and most of them hung out amongst the popular crowd.
I wanted to be popular too so I felt I always needed nice stuff too in order to fit in. I’m not saying that it was wrong for me to get some of the stuff that I did get, but after a while I felt somewhat entitled to getting it.
“All of my friends have nice cars. Why shouldn’t I have one too? Are you saying that my friends’ parents love their kids more than you love me?”
For a parent that wants to please their child, this can be a very compelling argument. Don’t fall for this load of crap. Thank goodness my parents didn’t fall for it either or I’d probably be a spoiled brat today. I think it’s fine to treat your child to a few luxury items here and there but make sure that they realize how much it costs and how much sweat and tears are required to earn it.
You Don’t Tell Your Kids How Much Things Cost
If I had known ahead of time how much college tuition was going to cost my parents given their financial situation, I probably would have spent far less money during my teenage years. The problem was that I had absolutely no clue how much money my parents made. I had no idea how much the car payment was, how much the mortgage on the house was or how much our monthly food budget was. In my mind, we bought a bunch of stuff every month and we had more than enough money to cover the expenses around the house.
I can understand why my parents wanted to shield all of the expenses from me but was that a wise decision in retrospect? If I knew about our financial situation (which wasn’t stellar by the way), I would have taken more responsibility to save and to spend less on entertainment and other frivolous expenses. I probably would have whined much less as well about stuff that I absolutely “needed” for school.
I think you have to trust your child with monetary information and have them learn from it. Anything that involves demonstrating the value of money or how it is handled and budgeted can make a valuable learning experience for your child.
Further Reading
Why am I so interested in teaching kids about money? It’s because my wife just gave birth to our baby girl. Instead of computers and gadgets, my brainpower is now fully devoted to learning how to raise my child the right way.
This post is getting a bit lengthy so I’m going to split it up into two posts. Please check back in a day or two for part 2 of this article.
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Hi Steve,
Gosh your parents sound a lot like mine! You must be way younger than me, coz we never heard of credit cards when I was still begging my parents to buy me stuff.
It’s interesting to note that I’ve done the exact same things you’ve suggested here to my daughters … it’s comforting to know there are other parents out there who think like me, LOL! Thanks for this.
Whenever I asked my mother how much something cost, it was ‘none of my business’. I wasn’t taught to use credit properly, balance a checkbook, etc. I had to learn the hard way!
I’m just about 30 and they didn’t use credit cards until I was in my teens. I think those were for the well-off, which we weren’t. I remember the old ATM machines though. I think they called them “Versatel”. Card goes in, money goes out.
I think the biggest mistake a parent can make is to not teach about money, period.
I can name other mistakes, but to me, this is the biggest one.
I hear you loud and clear Carla. I actually have a lot to say on this subject so please check back often.
This is such an important value and something I am trying to learn before my kids are older and unwise with money. I think that when children are given everything they could ever want ‘just because’ it creates not only a lack of understanding of money, but a sense of entitlement. Our society has created adults who overspend and are in enormous emounts of debt because no one taught them as children how to take care of money. It’s a vicious cycle that we have to intentionally stop.
when i was a child, my family hovered somewhere between poor and middle class. one of the greatest things they did was to teach me how to be an adult. as soon as i could write legibly and understand basic math, my parents had me join in the most adult of rituals: paying the bills. every month, we all gathered around the dinner table (with snacks and drinks) and “did the bills”. they’d open the mighty checkbook and it was my job, under their watchful eye, to add their paycheck amounts from their paystubs to the remaining balance. then they had me fill out each check for all the bills: mortgage, car, credit cards, electric, etc. they went with me through every bill. afterwards they had me add up all the checks and subtract it from the balance. this taught me just how much living costs. i saw how much their monthly income was, how much of that went to care for the family and how little (in comparison) is left over. this certainly curtailed much of my childhood whining and begging (didn’t stop it outright, though) and taught me how to be a financially responsible adult.
i think this was the #1 most important thing they taught me when they were giving me the tools to be an adult.
#2 was how to figure out how to fix things and #3 was to think things through and researching before making a decision.
[...] my previous article on mistakes parents make with kids and money – part 1, I pointed out 3 crucial mistakes that parents make with their kids and money. 1. Parents use [...]
Hi Coddswaddle,
I think that your family raised you very well. It’s extremely rare to find a family that is so willing to share all of this sensitive information with their children. To be this open really requires responsible kids. For example, you wouldn’t want your child to tell all of his/her friends about your financials. In any case, your parents are perfect examples of how to correctly teach kids about money.
Hi Sarah,
I totally agree with you regarding “entitlement”. You give your kid one thing and soon they think that they deserve the world. It’s definitely a tough line to tip toe across.
@Steve – I think what you said above is the in some families, but in mine, it was more of an adult/child boundary thing. To my parents, money, finances, etc was “adult issues” or “grown folks conversations” and children had no place in that.
Wow, Steve, I can totally relate to this post. I had no concept of money – when I was growing up, it wasn’t talked about and it was never an issue, because we were fairly well off. I got myself into tons of trouble with credit cards when I was a college freshman because I had no idea how they worked! AND – this is really embarassing – I didn’t even know that electricity and gas and water was something we had to PAY for! That’s because my parents never discussed bills or anything.
I feel they did me a huge disservice. Now, I’m very good with money, I don’t have credit card debt or anything – but I fully intend to teach my daughter about money as she grows up.
Blessings,
Andrea
Hi Andrea,
It’s not embarrassing. These things happen to all of us (me included). At least you overcame it and have the guts to admit it:)
Hi Carla,
Once my daughter starts going to high school, I think I’m going to let her take part in the “adult” conversations around the house. I’ll let you know how it goes.
Steve- personally I think you should involve your child before high school. Once I hit highschool, the school load combined with the overemotional hormone swings left me totally uninterested in Bill Day. I think the early grounding in finances helped me more than if my parents had started me on it later. Children are fully capable of being treated as adults, it may just take more patience and explanation on your part but I think that kids can easily handle it.
Hi Coddswaddle,
While I completely agree with you, I think I’m going to play it by ear. By adult conversations, I’m referring to full disclosure of the household finances and the spending decision making process. I’m not talking about monetary education in general which I’ll probably start when she’s able to speak:)
I agree! We are braiwashed into thinking that credit cards are great, without knowing how they work, and how dangerous financialy they can be. We are not taught how our mortgages work and how they are front end loaded for the first seven years on the amoratization schedule, and that we will be paying more than double the cost of the home. We are taught to be concerned about the mortgage payment only. We are not taught how to pay it off in one half to one third of the time . We are taught to use our home as an ATM machine, and we get further and further in debt. This is why very few people ever own thier home free and clear. This is why we are in slavery to debt! We have to get educated about hese things and educate our children or we are going to see more and more Foreclosures on the horizon.
Hi Ron,
You brought up a good point about mortgages. I was going to cover home buying and building wealth in a separate post. Thanks for the segue. Over where we live, homes cost around a million bucks just for a 2000 sq ft shack. Either you stay renting or you’re stuck with a huge mortgage for more than half of your life.
I think everyone is confused about money: those who have alot of it, and those who have very little of it, those who have been well informed about it from a early age, and those who were shielded from information about money matters, those who put too much stock in it and those who don’t put enough emphasis on it.
Those who are balanced about money matters are those who are balanced about everything else in life. Those who are responsible with money are those who are responsible about everything else in life. They are not particularly those who have been raised with fear of financial difficulties, or been overly burdened at a young age with financial information.
Hi Steve,
I really wish more and more teenagers understand that money is a fixed and valuable resource. I am an Indian. You might be knowing that the Indian economy was improving in the past few years. As a result, people have good amount of savings, most of which get used up fulfilling the lavish wishes of their beloved children.
In India, the concept of part-time job has not really picked up among students. At least till the age of 21, almost 95% of them are completely sponsored by their parents, right from their accomodation(usually live with parents) to education. Parents borrow huge sum of money as ‘Educational loans’. Now-a-days, there is a fad of doing MBA after degree(minor). Every 2nd college pass-out is pursuing his MBA, but do not bother to ask how prestigious the institution is. And the best part is that these guys neither have any owned or family business to administer, nor any practical experience! According to a survey, the employability of these MBA grads was just 23%.
By the time they earn their degrees, they develop a lifestyle which ultimately leads to bankcruptcy. These people don’t know about saving for a bad time! You can well imagine what habits they are likely to pass to their children!
Hi Rohan,
I had no ideas that that is the way it is in India. In the US at least, most business schools require you to have a few years of experience under your belt before they will accept you. Ironically, I’ve found that my doctor friends are the ones most susceptible to debt and they make the most out of all of us.
had no ideas that that is the way it is in India
My favorite saying to my kids about borrowing money. There are two reasons to borrow money.–
One to make money
Two to buy a house.
Anything else is living beyond your means and the debt you acquire will actually lower your standard of living.
Rick