Editorial Policy

5 bad money habits you're teaching your kids

Matt Alderton

May 7, 2015

When it comes to money, the adage is true: More is “caught” than “taught.”

For parents, this means it's typically not enough to tell kids the responsible financial behaviors you want them to practice; if you really want them to get the message, you usually have to show them.

That's what Sheridan Becker of Fort Lauderdale is doing. A single mother, she laments having already passed down several bad money habits to her kids, ages 12 and 13. Although it's sometimes difficult, she's trying hard to change her ways so her children change theirs.

“I have a love/hate relationship with credit cards; I struggle all the time with overspending,” admits Becker, a former expat who runs the website Go Gent!, a budget-travel guide for American tourists in Europe. “I want my kids to see the serious struggle that presents for me so they don't repeat my mistakes.”

Becker's hopes are shared by many parents, according to investment firm T. Rowe Price, whose 2014 Parents, Kids & Money Survey found that over two-thirds of parents are very or extremely concerned about setting a good financial example for their kids. And yet, nearly three-quarters are reluctant to discuss money with them, and nearly 30 percent agree with the statement: “I am not good with money, so I should not be the one to teach my kids about money.”

Whether parents feel deserving of the title “teacher” is moot. Like it or not, that's what they are. “There are so many habits that we pass onto our kids without even knowing it, and this is especially so with finances,” explains financial attorney and debt specialist Leslie Tayne of Tayne Law Group. “It is important to discuss early on lessons about spending and finances to instill in children healthy money perceptions and habits.”

It's especially important when you find yourself role modeling these negative behaviors:

1. Overspending

To turn her bad spending habits into good lessons, Becker embraces transparency at every opportunity. If she maxes out her credit card, for instance, she allows her children to bear witness when it's declined. “I want my kids to feel embarrassed and see where that takes us,” she says. “A lot of people would be really shocked by that, but that's the only way I can drive home that we need to stop doing what we're doing.”

Because her kids are obsessed with technology, she also allows them unfettered access to her credit card statements and transaction history, which they regularly view with their iPhones and iPads. “We have one credit card we use; they have my password and they get to see exactly how much money we spend and where we spend it,” continues Becker, who says the information is teaching her kids the importance of budgeting. “You'd be surprised how resourceful kids can be when they need to be; they'll make due if they understand what your limits are.”

2. Relying on credit

Transparency is one way to nip overspending in the bud. Another is getting rid of plastic, according to retirement consultant Danny Kofke, author of “A Bright Financial Future: Teaching Kids About Money Pre-K through College for Life-Long Success.” Because he thinks overreliance on credit is one of adults' worst habits, he and his wife spent the first five years of marriage using the “envelope system” of budgeting: They kept cash funds for various budget categories in envelopes, and when the envelopes were empty they stopped spending.

“I've realized with my daughters that the most important thing I can give them is my time. It could be a walk in the park or going to feed the ducks.”
–Danny Kofke, financial author

“Plastic makes things too easy,” explains Kofke, who says parents should use cash instead of credit whenever possible. “When kids see you using cash, they realize that money is [finite]. There's not an endless supply of it. We can't just swipe a piece of plastic and get what we want.”

3. Whispering about money

Although cash is king, sometimes there isn't much of it. In those instances, parents often find themselves whispering about money. Unfortunately, that often backfires, as whispers can be just as unsettling as debt. For that reason, Kofke recommends having frank but age-appropriate conversations about finance.

“For a lot of people, money is a taboo topic. For us, it's the complete opposite; we started talking to our kids about money when they were 3 years old,” says Kofke, whose daughters, Ella and Ava, are now 7 and 10, respectively. “Of course, if you're in trouble — if you're about to lose your home or something — you don't want to talk about that. That's scary. But for everyday basic things, it's healthy.”

4. Fighting about money

If whispering about money is one extreme, yelling about it is the other. “Fighting about money at home causes issues with kids and sets a bad example,” Tayne says. “Kids learn to associate money and spending with negativity and arguing, when in fact money isn't negative. People can have disagreements about it, but money in and of itself isn't bad. There are lots of benefits you can derive from it.”

Because you can't un-yell at your spouse, prevention in the form of rational, level-headed money talk — think calm, even-keeled discussions at the dinner table instead of boisterous, closed-door arguments in the bedroom — is the best antidote. “Always be aware of what you say to and around the kids,” Tayne says.

5. Buying happiness

Among the worst behaviors kids learn from parents is materialism, which breeds bad financial behavior. “A lot of times, we as parents feel guilty that we're working so hard and don't see our kids as much as we'd like. So, we buy them everything they want,” Kofke concludes. “I've realized with my daughters that the most important thing I can give them is my time. It could be a walk in the park or going to feed the ducks. Whatever it is, the memory will mean much more than anything you'll ever buy them.”