My Dad always had a very annoying saying, “Don’t do I do, do as I say do.” It used to drive me crazy when I pointed out what I felt was a double standard in parenting. Of course as a parent now, I kinda know what he meant. (I still don’t use that phrase!) No matter what you say, your children learn a lot by the example you set. So if you are exhibiting poor financial planning habits, they’ll see that and do the same thing.
I’ll give you an example from my childhood. One time I really wanted a toy at the toy store. My parents wanted me to wait till some birthday or Christmas. Well I wasn’t going for that. So I said, “Pay for it with your credit card!” So if you think they aren’t paying attention, think again. So how are your poor planning habits hurting your kids? Read on.
No College Savings
One of the easiest examples of how poor parental financial planning affects your children is with college savings. Poor budgeting and savings will have them incurring debt into their young adult lives. I recently heard on CNBC that college debt has now exceeded credit card debt in the United States. The average undergraduate had over $12,000 of this crushing misery. So start saving early, or at the very least save something. Use a college savings vehicle like a 529 for the tax advantages.
No Retirement Savings
Most parents put their kids first. From a financial perspective, not saving for retirement and saving for college can be a problem. I know the college goal comes first chronologically, so we naturally try to sink the money into this goal first, thinking we can catch up later. But later never comes. Don’t neglect your retirement savings to give them everything. They can borrow, get scholarships and work. You can’t borrow or get scholarships for your retirement. So when these children have their own families, they will be helping the cash-strapped parents get through retirement.
Not Living Within Your Means
I think that this is the main reason most people get into trouble financially. Ultimately, living beyond your means is because of poor financial planning. You will teach these poor habits to your children, because they are watching and you are setting the example. Giving your kids everything they ask for is a recipe for disaster. They will eventually overspend in their adult lives, because they have no appreciation for a dollar or hard work. They will grow up with a sense of entitlement. In addition, poor financial planning will cause stress in the home. One of the reasons I’m self-employed is because I watched my Dad get laid-off numberous times when I was growing up. I noticed it and worried about it as a kid.
The Plastic Obsession
Children that grow up watching their parents whip out Visa and American Express for everything don’t see a finite limit to the money. With cash even young kids know that once you spend it it’s all gone. This will definitely be a bad habit that could take years to change. Talk to them about money, spending and credit cards. Tell them when is a good time and a bad time for their use. I’m not saying there aren’t good times to use credit, like 0% interest offers, or for a car or home. Perhaps paying by cash when they are present?
The example you set with your finances and planning will go a long way for their financial futures. The clients that I know that use these ideas, have kids that hate debt and save like Scrooge. Money is always an opportunity to teach. Use it wisely, and set a good example.