Parents, you try to do the right thing for your kids. But sometimes you make mistakes — especially when it comes to money matters. I know because, as a mom of three, I don’t always get it right, despite my best intentions.
The key, however, is to recognize your financial missteps so you can correct them. The sooner you do, the better off your kids will be going forward, said John Lindsey, a certified financial planner (CFP), founder and CEO of Lindsey & Lindsey. And your finances will likely benefit, too.
With that in mind, here are 15 common money mistakes parents have made over the past year and tips to avoid them.
1. Failing to Talk to Your Kids About Money
Not having open conversations with your children about money and financial matters is one of the biggest mistakes parents can make, said Lindsey, who has three grown children. Yet, plenty of parents were guilty of this over the past year. About 40 percent of parents said they sometimes avoid talking to their kids about money, and more than one-quarter said it’s not important to include kids in discussions about family finances, according to T. Rowe Price’s 2015 Parents, Kids & Money Survey.
You don’t need to share the specifics of your finances, which kids might repeat to others, Lindsey said. But you do need to take advantage of opportunities to teach them the basics of money so they have an understanding of where it comes from and how it’s used.
As situations involving money arise, “stop, think and explain,” said Leslie Tayne, author of “Life and Debt” and mother of three. For example, while you’re out shopping you can educate your children about the importance of making choices and not spending more than you have.
2. Setting a Bad Financial Example
About 80 percent of parents think they’re setting a good financial example for their kids, according to the T. Rowe Price survey, but nearly 70 percent said they’ve done things that might not qualify as setting a good example — such as lying to their kids about money.
From a young age, children model their parents’ behaviors, said Susan Newman, a social psychologist and parenting expert. “If you’re walking in the house with four or five shopping bags, your child is noticing,” she said. “You can’t expect a child not to want and want more if, as parents, you’re indulging yourself when you’re shopping.” So consider if the financial examples you’re setting are ones you want your children to emulate.
3. Being Afraid to Say No
Parents often are afraid to say no to their kids’ requests for things because they don’t want to see them unhappy. But if you always say yes, they’ll keep asking you for more.
“Those are fatal mistakes,” Tayne said because your kids learn that they can get everything they want. Not only will they have a sense of entitlement, but also meeting their demands could wreak your finances if you’re buying them things you can’t afford.
Learn: How to Say ‘No’ to Your Kids
4. Not Being Consistent
So maybe you told your kids “no” plenty of times over the past year — initially. But as they pressed you, you gave in. For example, you might have told your young child he couldn’t have the candy he was begging for in the checkout line at the supermarket but caved as soon as he had a temper tantrum. Now your child knows that he’ll get what he wants by behaving badly, and the meltdowns will become more frequent and intense, Tayne said.
To avoid this, you need to set boundaries and always stick with your answer, she said. This doesn’t mean you have to say no to everything, though. For example, you can tell your kids they won’t get every toy they ask for during a regular shopping trip but might get their favorite for a birthday or holiday.
5. Bribing Your Kids
About 40 percent of parents surveyed by T. Rowe Price said they’ve used money as an incentive to get their kids to do something. However, bribing your kids sends the message that there’s no intrinsic value in doing the right thing and that they should be paid to do it, according to WebMD. The more you bribe them, the more they’ll expect to receive a monetary incentive.
6. Not Giving Kids a Chance to Manage Their Own Money
Just because you shouldn’t bribe your kids doesn’t mean you shouldn’t give them money. However, it should come in the form of allowance or payment for doing certain jobs beyond what’s expected of them as contributing members of a family.
According to the T. Rowe Price survey, even though more parents gave their kids allowance in 2015 than in past years, 30 percent did not give their kids any allowance. An allowance, however, gives children the opportunity to learn how to responsibly begin managing money.
7. Taking Money From Your Kid’s Piggy Bank
More than one-quarter of the parents surveyed by T. Rowe Price said they sometimes take money from their kid’s piggy bank. There are a couple of problems with this.
For starters, you’re stealing. Even if you initially gave the money to your children, it belongs to them now. So you shouldn’t be taking it without asking. Even if you do ask, you could be sending a signal to your kids that you’re having trouble managing your own money if you’re coming to them for cash. If you’re short on funds, look for other ways to cut back rather than raiding your kid’s piggy bank.
8. Overlooking the Benefit of Roth IRAs for Kids
Once kids have earned income from a job — such as babysitting or mowing lawns — they can contribute to a Roth IRA. If your child is making money and you haven’t helped him open a Roth account, you’re missing out on an opportunity to help him start saving for retirement at a young age.
Lindsey said that he opened Roth IRAs for his two younger children about 10 years ago when they were in high school and working at his office. They now have more than $40,000 each in their accounts. “That’s significant to them,” he said because the money can continue to grow for retirement or they can tap it to buy a house.
9. Giving Kids a Credit Card Without Teaching Them How to Use It
Tayne, whose law firm Tayne Law Group provides credit and debt solutions, said she often sees teens in credit card debt because their parents haven’t taught them how to use credit responsibly. If you give your child a credit card, you need to explain to them that it’s not free money and they will have to pay for their purchases.
Give them a budget, ask them to get permission from you before using the card and show them the bills or the account online so they can see how much they’ve charged and when payments are due, she said. Doing so can help your child’s spending habits stay on a tight lease.
10. Complaining or Arguing About Money
More than 40 percent of parents surveyed by T. Rowe Price said they argue about money at least occasionally. If you’re arguing or complaining about money in front of your children, you might be creating negative associations with it in their minds, Tayne said. Keep complaints and disagreements about your finances private and focus instead on discussing the positive aspects of money with your children.
11. Not Being Honest About Your Family’s Financial Situation
Most parents who don’t discuss financial matters with their kids avoid the topic because they don’t want their kids to worry about the family’s finances. But if there’s been a change to your family’s situation, such as a job layoff, it’s important to help your children understand the situation, said Scott Bishop, director of financial planning with STA Wealth Advisors.
You don’t want to scare them by telling them that whatever happened will have a huge impact on your family’s finances. Instead, have an age-appropriate conversation about lifestyle changes your family might have to adopt. These financial lessons will help them development good saving and spending habits.
12. Putting Your Kid’s Education Ahead of Retirement Savings
T. Rowe Price’s 2015 Family Financial Trade-offs Survey found that parents consider saving for their kids’ education a higher priority than saving for retirement. However, parents shouldn’t be shortchanging their retirement savings to pay for their kids to go to college, Lindsey said. Otherwise, they won’t be able to retire.
Don’t assume that your kids will have to take on student loans to pay for college if you don’t pay for it. However, they might have to work through school or attend an inexpensive community college for two years then transfer to a four-year university to make their education more affordable, he said.
13. Letting Your Adult Kids Move Back Home
Even though the economy has been recovering for several years, a greater percentage of 18 to 34 year olds were living in their parents’ home in the first four months of 2015 than in 2007 during the recession, according to a Pew Research Center analysis. Letting your adult kids move back home is a mistake though, Lindsey said. They will come to rely on you for support and won’t learn how to become financially independent.
And you might put your own finances at risk if your money is going toward supporting your child rather than funding your retirement account or paying off your own debt. Follow these steps to cut off your adult kids without causing resentment.
14. Not Discussing Finances With Your Adult Children
Not only are parents reluctant to discuss financial matters with their young children, they also don’t want to share information about their finances with adult children. Fidelity’s Intra-Family Generational Finance Study found more than one-half of parents haven’t had detailed conversations with their adult children about covering living expenses in retirement.
If parents don’t tell their children what assets they have, whether they have legal documents such as a will and power of attorney, and where those documents are, it can be difficult for children to help their parents manage their finances if they no longer can themselves or deal with their estate after they die. “Parents leave their kids a nightmare to administrate often,” Lindsey said. “That’s a huge mistake.”
15. Going Overboard During the Holidays
So maybe you haven’t made this mistake yet this year. But parents often feel the pressure to indulge their children during the holidays. That can mean racking up debt or raiding savings to pay for gifts. The T. Rowe Price Kids, Parents & Money Survey found that 47 percent of parents have used credit cards for holiday spending, and 29 percent have used regular savings.
To avoid going overboard, Newman said parents should ask their children to write a gift wish list and rank the items based on how much they want them. Be clear that they won’t get everything they want. And let them know that even Santa has a budget.
Help them learn the true meaning of Christmas by having them clean out their closets to find items to donate to less-fortunate children. “That teaches them an important value,” she said. “It lets them understand they have more than others and become appreciative of what they have.” It’s also a good habit for kids to pick up during the holidays, the most expensive season of the year for parents.