3 Mistakes Parents Make When Teaching Their Kids About Money

Shari Rash
June 30, 2022
Share this post

Mistakes parents make when teaching their kids about money

Millennials are different from the generations before us in a few ways.

For one, millennials are more highly educated than older generations, but earn less, have fewer assets and have less wealth than Boomers and Gen Xers at the same age.

If we go a few generations back, only 26% of Baby Boomers faced financial instability.

The trends show that new generations are struggling financially. We can thank student loan debt and lower incomes compared to rising costs for some of the reasons we are struggling financially.

But I also believe that a big reason is a poor understanding of good money habits. I wrote a blog on Charleston Moms that talks about how earning an allowance can help your children develop financial literacy. But I wanted to take it one step forward and talk about what the kids should do with their money after they receive it.

Many people, especially Baby Boomers (aka our parents) were raised thinking talking about money is taboo. This creates a domino effect of issues.

As a financial advisor and mom of 4, I believe having conversations about money and making money education a part of everyday life builds a strong foundation for financial health going into adulthood.

It’s much better to learn in a positive environment than be thrown out into the world with no clue about what living within your means truly is.

Boomers talk to their millennial children about money

If your parents never talked to you about money, you either do the same with your children or take it in a completely opposite direction. Boomers, fortunately, did the latter with their children.

Boomers are rather open with their millennial children when it comes to money. Nearly 75% of millennials say their parents openly discussed money with them. Talking about money related topics creates more financial literacy. Talking then turns to teaching and children learn from our actions. We need to make sure we are teaching our children the right things when it comes to money.

I’m sure as a parent you do not want your child to experience the financial struggle you have experienced or are still experiencing. You want to give your child a leg up in life, so let’s go through some of the mistakes you may be making. And think to yourself: did my parents make these mistakes as well?

Kids learn from their environment. Take language for example. There isn’t one universal language. Instead, there are countless languages and cultures that kids are taught from a young age. If a child grew up in Ohio, but their parents speak fluent French at home, that child is likely to pick up on both languages. The same goes for money.

If you are teaching poor money habits, your children will adopt those habits as what they should be doing.

What are you doing to teach your kids good money habits?

Saving is a fundamental component of financial stability. What do you do with the birthday money your children receive? Is it given to them right away or is it put in a savings account?

Are you teaching your kids how to spend appropriately? If you give your children their birthday money right away to do with as they please or always say “yes” to a new toy in the store, you might be unknowingly teaching poor spending habits.

Do you think with a giving mindset? Your kids should be thinking about giving back, whether that be to the church or different charities.

I am going to share with you three poor habits you may unknowingly be teaching your kids, the importance of good money habits, and strategies to change the way your kids view money.

Financial Essentials for Young Families

Teach Your Kids Good Money Habits: Mistake #1: Not Saving Appropriately

Every kid has a piggy bank. The piggy bank is usually filled with money left from the tooth fairy or cash in a card from grandma. And usually it just sits there. The intentions are good with piggy banks: if you get money, put it in the bank to save it. But, that’s only part of the lesson.

What’s missing is: why are we doing the pomp and circumstance of putting the money in the piggy? Why are we saving and what are we saving for? And then what determines when that piggy gets opened, how do I get my money back?

Usually what happens is as the kid gets old enough he will open the piggy bank, take all the wrinkled bills out and go to the store to buy some toys. And poof! The money’s gone and the piggy is empty. We saved into the piggy bank all this time for that?!

The problem I have with piggy banks is that the kid is taught to save (that part is good) but then they are allowed to empty the savings and do whatever they want with the savings and deplete it. So, our kids are subconsciously being taught to put their money away and then use it all up at a later date.

Teach Your Kids Good Money Habits: Mistake #2: Spending without a strategy

When I was little I remember that my dad would use cash to pay for mostly everything. I enjoyed the visual of looking up at him, pulling his money out of his pocket, unfolding the stack and counting out the bill to pay the cashier. We pay money for stuff.  We can only buy enough stuff as the amount of money we have in our pocket. Whenever he would take out his green Amex to pay, I would think “oh man he’s buying something expensive!”

How many of our children can say they have a similar memory? I would guess pretty close to zero. Instead they see us take out this plastic rectangle, stick it in a machine and we get handed a receipt. They do not see the exchange of money for goods, and they are not taught to buy only what the cash in our pocket can pay for.

Teach Your Kids Good Money Habits: Mistake #3: Not putting your money where your mouth is

To teach your kids to save and spend the right ways is so important, but you should also teach them to give. Do your kids see you give back? Do they know you donate to charity?

At church the wicker basket comes around and as a child it’s always the best part when the basket comes to you and you get to put your dollar in there and pass it to your neighbor. Nowadays, I can donate to my church online, which then eliminates the need to put (or have my kids put) my money in the basket.

There’s GoFundMe or charity websites where you can enter your credit card information and donate straight from your phone. Do you kids see it? Do they know you’re giving back and understand your hard earned money is going to do good?

How to Implement Strategies to Strengthen Good Money Habits

You, as the parents, hold significant value when it comes to the learning of your children. Your values, beliefs, and ideologies are passed down to your kids whether from direct conversation or indirect learning.

There is only so much that kids will pick up on in school, leading to a much more profound impact when money habits are learned within the home.

If you are making some of the mistakes I mentioned above, don’t beat yourself up! The good thing is that we can implement smart money habits at any time.

We’ve identified mistakes we make as parents when teaching our kids about money, let’s talk about some of the right things to do when teaching our children about money.

As a financial advisor and mom of 4, I believe in the save, spend, give methodology.

One of the many great things about save, spend, give is that your child can carry this methodology into adulthood.

Stay at home moms can save for retirement

Teach Your Kids Good Money Habits: Save, Spend, Give

Save, Spend, Give is exactly how it sounds: a portion of your money is saved, another portion is earmarked to be spent and another amount is given, or donated.

When introducing this concept to your child, you can work together to determine appropriate percentages allocated to each category. I often see families decide that 50% is saved, 40% is spent and 10% is given.

If you have not done so already, I suggest you open a savings account for your child. There are some great ones out there, with decent rates.

Buy your child a wallet. Pick something practical that they can fit in their pocket or wear in or as a purse. They need to have a special spot in their room and know that that spot is where their wallet will always be. From experience, it may also be good to keep the spot hidden from siblings. In our household sometimes little sisters like to “borrow” a few bucks when their wallet is getting slim.

Talk with your child about organizations that they care about and would like to donate to. If they like cats, donate to the ASPCA or if you would like to teach them a lesson in gratitude and not taking our good health for granted, donate to St Jude’s Children’s Hospital. It is important for them to have buy-in on where the money is going so they can experience that wonderful feeling of giving back.

Save, Spend, Give: Good money habits for children

Let’s break down each step into more detail:

So whenever a child receives money from their allowance, a gift or earned, you should work with them based on the agreed percentages and allocate to the save, spend and give buckets. The money that is saved can then go into the piggy bank. But we don’t keep the money in the piggy forever. You will need to create the routine of emptying the piggy, counting the money and bringing the money to the bank and depositing it into your child’s account.

The spend money can go right into their wallet. This action shows them that they have money to spend and it is a finite amount. Then when there are times that they need money, they have their wallet and can pay for their items or experiences themselves.

You can donate right then when the money is earned or you can start a kitty and donate a larger amount every month, quarter, etc. I suggest keeping it in a jar, so your child can see that they are giving back and doing good.

Teach Your Kids Good Money Habits: Save

The save step is where you teach your kids to understand the importance of saving money.

Make sure they understand what a savings account is and how they can utilize this account to reach their financial goals.

Start by having your kids think of something they want. Depending on their age, their goals might be saving up for a car, a special event or a purchase larger than the amount in their wallet.

I like assigning savings accounts to specific purposes. One savings account may be for a car a few years down the road, another account may be for big purchases that will happen sooner. This makes saving more fun.

If we were saving just for the purpose of saving with no goal in mind, then where is the motivation?

Although we don’t want to limit their creativity, we want to be sure their financial goal is attainable and show them how it is attainable and set their expectations on how long it will take them to save for this item.

Now, break it down. How much does this item or experience cost? Based on allowance, earned money, etc. how much can they reasonably save each month? Maybe they need to set aside $20 of chore money a month or allocate 50% of their paycheck into a savings account for the next four months. By giving a real life example of the importance of saving, you are creating good money habits that they will use now and carry them into the future.

Teach Your Kids Good Money Habits: Spend

After you’ve gone through the importance of saving, your kids should understand how to spend effectively. Teach your children about credit cards and debit cards.

Too often, teenagers go out into the world and take on credit card debt without understanding the impact of interest and how debt factors into their credit score.

I remember on my college campus credit card companies would give us free t-shirts for signing up for a credit card. Thinking back, it’s pretty appalling! Students don’t know any better and they don’t understand what they are signing up for. For a free t-shirt we could have unknowingly ruined our credit or gotten ourselves into a lot of financial trouble.

Depending on their age, they may not need to understand credit, but when your child is in high school and college, they should.

Teach them that a credit card is not unlimited money, you have to pay that balance off every month when you receive the bill in the mail or you will be paying interest on those purchases and potentially big yourself into a hole that you can not get out of.

If you don’t love the idea of your child carrying around cash, you can put your teachings into action by utilizing a kids bank account.

These accounts are designed specifically for learning in children, giving them access to a debit card, checking account, and savings account that you closely monitor. Teach them to log in to view their balance before making purchases and decide on a minimum that they must keep that checking account to.

Practical applications reinforce the spending habits you are promoting. It’s best to let your child make mistakes under your supervision, such as over drafting the account by a few dollars. This provides an excellent teaching opportunity and can reduce the risk of these mistakes happening in adulthood.

Teach Your Kids Good Money Habits: Give

Giving back is another component of teaching your kids good money habits. You can do this in many ways: tithing to your church or religious organization, donating to a charity of your choice, buying cookies at the school bake sale. However you choose to give back, make sure your child is a part of the experience.  

Find what your child is passionate about. It could be animals or cooking. Then, find a charity or way for your children to give back to their passion. This can take on many different forms, such as donating $5 a month to a local animal shelter or allocating $10 to purchase canned goods for a food drive.

Teaching that giving is important at a young age will help your child budget properly to have leftover money to donate. Frequent giving also builds character and instills strong values in your child.

Its time to start teaching you kids about money

What money habits have you started to teach your kids? Promoting good money habits should be done at a young age. In fact, research suggests that kids are more susceptible to learning before they reach the age of 9.

Good money habits set the foundation for the rest of your kids’ lives. Teaching good habits from a young age positions them for financial success without having to live paycheck to paycheck. We always want better for our children than what we have and most of the time that revolves around money.

Related Articles

What Should Stay at Home Moms do with old 401k?

What should Stay at Home Moms do with old 401ks?Stay at Home Moms are in a unique spot, financially. They are not “earning” a paycheck, but they contributed financially to their household in the past and are now contributing to their household in a different way.

Paving the Path to Financial fulfilling: Addressing Financial Issues for C-Suite Women

As we forge a path in the 21st century, marked by rapid technological change and persistent social evolution, the face of corporate leadership is also undergoing a welcomed transformation. Although the percentages are nowhere near equal, more women than ever are taking up the helm of organizations as part of the 'C-Suite' - the highest-ranking senior executives.

Women are not as confident as men when it comes to investing - Myths Part 2

In my experience I have found that there are many preconceived notions about women and money; Some may think that women lack investing confidence. It is not often that you hear a group of women talk about their investments. I believe that is because women have a different relationship with money than men and the different relationship results in misconceptions of women and their financial confidence.
Subscribe to newsletter
Subscribe to receive the latest blog posts to your inbox every week.