5 Misconceptions Your Child Probably Has About Your Finances

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Part of the reason most kids in America have no concept of money is because parents don’t share their financial information with them. Most kids have no clue how much their parents make nor do they have any idea how much it costs to survive in the real world. Because this information is not readily available, it is only natural that kids will make assumptions regarding their household finances. Most of the time, their assumptions are grossly incorrect. Next time you have the chance, talk to your kids and check to see if they have the following misconceptions.

Your Kids Think You Are Wealthier Than You Really Are

My dad is an electrical engineer and my mom is a biochemist. When I was growing up, I used to think that their combined income was around 300k a year. Why did I think this? I blame television shows and the media.

Kids and Money

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Everyday on TV, you hear about millionaires and billionaires and how their wealth is just oozing out of their ears. The media rarely reports stories about the middle class, so kids naturally correlate what they read and hear about rich people on TV with real life.

One of my favorite shows growing up used to be MacGyver. Was MacGyver ever on a budget? Sure, he wasn’t flashy or anything, but he seemed to have plenty of money lying around. He was an engineer of sorts too just like my Dad. I certainly never saw him holding a day job or hurting for cash.

How about Knight Rider? Watching David Hasselhoff driving around in a fancy computerized car fighting crime on an endless budget didn’t really strike me as unusual at the time. What about athletes and the ridiculous salaries that they command? If all of these people are making good money, isn’t it reasonable that my parents earn good money too?

Next time you see your kids, ask them how much they think you make. Better yet, ask them this question after an episode of Beverly Hills 90210. I’m sure their numbers will be grossly off. Unless you set them straight, your kids will have a natural tendency to think that money is plentiful and that you are the king of cash.

Your Kids Have No Clue How Much The Household Expenses Are

When I was a kid, I thought that the only expenses our family had were food, gas and clothing. Our family didn’t eat out that often, so food couldn’t have been that expensive. We didn’t drive a hell of a lot so our gasoline bill couldn’t have been that high. Oh, and I certainly didn’t dress as well as the other kids in my school so clothing expenses couldn’t have been that much either. We must have been saving a crap load every month!

Now that I’m an adult, I look back on my teenage years shaking my head. Can you tell me what expenses I left out as a child? Practically all of the big ticket items, like rent, car payments, utilities, credit card bills etc… were missing. Trust me, if you don’t point out to your kids some of your expenses, they will naturally think things are free. Take electricity for example. I used to assume that power was a god given right provided to everyone! The only utility I knew of that wasn’t free was the phone bill because my Dad routinely yelled at me for racking up high long distance bills. Every since he told me how much our phone bills were, I stopped making as many calls to my friends out of state. If your kids are aware of the costs, they will do their part and try to conserve. If all else fails, you can always use guilt as your ally(more on this in a subsequent post).

Your Kids Have No Concept of Financial Priorities

As a teenager, I only had one financial priority, having fun. I spent money on clothes, games, food and going out. I wasn’t aware of the necessities. I had no clue what it took to survive.

I didn’t know that my parents were working their butts off so I could have fun and be like other kids. I had no idea that my parents were putting in extra hours so I could go to college and not have to take out student loans. Why did they keep this information from me? I think I would have been a much more financially conscious kid had I known the hardships that they went through to make me happy. Honestly, I didn’t really need half of the stuff I spent money on.

My parents did a great job raising me, but I can’t help but feel a little guilty that I didn’t help out more. That’s why I think it’s important as parents to assure kids of the financial priorities of the household.

Your Kids Have No Idea How Much You Have Saved

This point is very similar to the one about your kids thinking that you are rich. I had no idea that our family didn’t have much savings growing up. When I asked for a brand new car for my birthday, I naturally assumed that the 20 thousand dollars would just be a drop in the bucket. Just whip out a check and hand it to the car salesman. Better yet, use the credit card!

Now, I realize how low the savings rate is in the United States. The average family only saves around 5% of their income per year. Many people have negative savings and are heavily in debt. Looking back, I was such a bratty teenager but I’d like to give myself the benefit of the doubt since I didn’t have all of the facts.

Why Don’t We Share More About Our Finances?

I asked several parents this question along with my wife. Parents don’t divulge their financials for 3 main reasons.

  1. Parents want to shield their kids from the harsh realities of life. They don’t want their kids to worry about money so they can enjoy life.
  2. Parents that have a lot of money don’t want their kids using it against them.
  3. Parents are embarrassed at how little they’ve saved.

This is how I look at it. The longer that you shield your child from the harsh realities of life, the less you are preparing them for the real world. Once your kid is in college, they’ll be on their own and they’ll make many crucial mistakes unless you prepare them ahead of time.

If you are a wealthy parent and you don’t want your kids to know about your financials, then I can’t really comment because I have no experience here. All I can say is that being wealthy is a good problem to have. Worse case scenario, you can probably afford professional advice for your child.

If you are ashamed by how little you’ve saved, you should still let your kids know so that they’ll spend less. Hopefully, they will not make the same mistakes as you in the future.

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11 thoughts on “5 Misconceptions Your Child Probably Has About Your Finances”

  1. Jarkko Laine says:

    This is so true!

    Thinking back in my childhood, I think I didn’t have too big misconceptions about how much money my parents were making. I more or less knew the sum. Then again, because I didn’t understand household expenses at all, I too thought my family had a lot of money…

    For some reason, now that I’m grown up, the roles seem to have changed. I know that my parents don’t have that much money, but for some reason they think I do. Which quite frankly isn’t so. 🙂

    Talking about money is always so tricky… Thanks for the great post! I’ll try to not make these mistakes with my son.

  2. Richard McLaughlin says:

    I thought I had an idea for my folks and can remember talking to my older sister once about it. We had gone out to dinner, so I was old enough to drive, but it was before I joined the Marine Corps at 19.
    When I said something about how much dad made she said “I don’t want to know” and basically did the thing where you say la-la-la-la-la-I-Cant-Hear-You until the person shuts up.
    My kids are still at the money grows on trees stage of life.

    Once had my son ask why I don’t pay for something (I’m divorced) for him, and that his mother does. I told him that his ma does not work, I give her a lot every month to pay for their stuff – and he said that the money I send was for her. My kids really have no idea.

  3. Steve says:

    Hi Jarkko,

    I’m 33 years old and I just recently found out how much my parents make. They aren’t doing bad, but my salary estimates were way off. Back when I was in high school, I was probably off by 4X. It turns out that I would be mired in student loans had they not gotten lucky during the stock market boom of the late nineties. Actually come to think of it, just 2 stocks, Oracle and Microsoft.

  4. Steve says:

    Hi Richard,

    I always wanted to know how much my parents made growing up but they used to always brush off the question. I naturally assumed that they didn’t want me to know because they didn’t want me to use it against them. Your kid sounds like he’s a bit young at this point, but clearly he’s curious, otherwise he wouldn’t have asked you the question.

  5. Ashley @ Wide Open Wallet says:

    I love this post. I think another reason people don’t share their income and bills with their kids is because kids talk, and they don’t want their neighbors the truth.

    I plan on sharing all that with my kids but I know that means I’ll be sharing with their friends and parents. But whatever, that’s a small price to pay. The kids need to have a realistic view. Maybe even a friend (or friend’s parent) will also get a reality check.

    The kids can only use the info against you if you let them. When you explain that you have XX in savings then you also need to explain why. That you are saving up for a car so that you don’t have to waste money on interest. Or for retirement, or emergencies, ect. The kids need to know that the money represents sacrifices and purpose. The savings fairy didn’t bring it.

  6. Steve says:

    Hi Ashley,

    This is definitely a tough one and I think it’s largely based on mutual trust with your child. You don’t want your child blabbing to all of their friends about your finances, but they have to learn somehow. I’m not sure how I’m going to approach this problem when my daughter grows up. I think I’m going to feed her information little by little and see how things go. I’ll let you know what happens when I cross that bridge.

  7. Pingback: 5 Misconceptions Your Child Probably Has About Your Finances | allpiggybanks.com
  8. Lisa says:

    We’ve worked out “money” with my 8 year old, better than my parents ever did with me. Forgive me, this is long… but has been a miracle worker in our house, and maybe could help some other parents/kids.

    Frankly the money that we have coming in has a lot of zeros attached to it — and so does the money going out — leaving us with about two zeros in between. My kid is in 3rd grade, and understanding lots of zeros is still a little difficult for her. Even for my husband, [who is an electrical engineer and deals with fractions of nano-seconds for a living] how all our finances work is more than he wants to know.

    Instead, for now, I have my kid on a ‘ticket system.’ She gets a couple tickets every day to spend on things she wants — usually tv or computer time, stuff I’m not too thrilled about her doing a lot of. Then she can earn more by doing things she doesn’t much like [job-like] such as helping with laundry, cleaning her room, eating all her veggies, finishing her homework, etc. At the end of the week, she decides how many unspent tickets to turn in for $dollars, and we take those to the bank to deposit into her savings account.

    She has very quickly come to understand working to earn money/tickets which translate directly into “things you want” — and once or twice when she’s used them all up she’s asked me to borrow tickets. That’s where it really gets good.

    She wanted to borrow 3 tickets [which is what she has to pay to watch a movie]. I said sure, but in three days, I’ll need you to pay back 4 tickets to cover the three you borrowed. Put so plainly, it was immediately clear she didn’t want to borrow, and instead would knuckle-down and earn the tickets instead. That seems to have stuck with her as she’s only asked to borrow tickets one more time — and reminded of the terms, she immediately dropped the request.

    Furthermore, since these tickets are worth $1 and she will often only save about $5 by the end of the week — it has helped a great deal to put in some sort of perspective, how much $20 is, or $100. Oh, and any online computer game membership she wants, she has to pay for — that has made her far more discerning in her choices, and reduced the nagging for them to nil. In fact, nagging for most any toy has virtually disappeared. She knows she has the power to save up, if she really wants it — and if she has coveted item, she can’t have the other. And if I choose to get her something, she REALLY is thankful for it because she knows how much work it would be for her to have to save up for whatever it was.

    As a funny footnote to this… She has indeed put about $350 away over the last year [birthday checks help a lot!]. For that, she has earned exactly $.03 in interest. I don’t bother with the ‘save your money and it will grow,’ speech, as I’m afraid I don’t much buy into that myself. Instead we focus on saving up for something you really want — in this case, it’s her share [her goal was to pitch in and pay $300 toward the trip] for a family trip to Orlando.

    1. Steve says:

      Hi Lisa,
      What a great way to teach your child about the value of money. I’ll have to save your comment for future reference:)

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  10. Jenny @ Frugal Guru Guide says:

    We don’t talk income numbers with our kids–they’re too young to explain–but they know about our budgets for various things and how we save.

    And understanding that, they don’t have a huge sense of entitlement.

    I DO tell the children that we are rich, though. All the time. We ARE rich. We live in America–virtually everyone in America is rich. My husband grew up without hot water or a bath tub. Who has a home without full plumbing here?

    We are incredibly rich and incredibly fortunate, and we don’t want our children to lose their sense of gratitude for that.

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