Money Mistakes Parents Make

Kristina: Welcome, parents! Today we’re going to talk about how parents influence their children’s perspective on money.  How we talk about money matters! And our guest today also gives us tips for not being a financial burden on our children later in life. So let me introduce you to Misty Lynch.  She is a financial advisor. She also hosts a weekly podcast called Modern Money. Thank you for being here, Misty.

Misty: Thank you so much for having me, Kristina.

Kristina: How do parents influence children with just how we talk about money?

Misty: Many people can remember the way their parents felt about money. Kids listen to how their parents feel about money, which impacts how they look at money throughout their lives. If they’re always hearing things like, ‘we can’t afford that,’ or ‘must be nice,’ then children will view money from a scarcity mindset.  Kids will think that there is never enough and maybe start to feel afraid of money.

Kids today are also in a new generation of learning from how we grew up. Kids are not used to even seeing cash! They view money as swiping a card or touching a button. This makes it really difficult to understand the concept of spending.

We can have better conversations with our children at a young age to build a healthy relationship with money because it will always be a part of their lives. I think that money is one of those parenting things that sometimes we don’t even teach. I see many parents who just assume that the school teaches kids about money, and most of the time, that is not the case. In reality, education starts in the home. Parents need to teach how to save, how to spend, what investments are, and things like that.

Our kids are actually having more difficulty understanding or comprehending money because they don’t physically use it the way we did when we grew up. It’s all virtual.  And parents need to start these lessons young, so they have lots of time to learn.   We want teens to be proficient in money and learn how far the dollar stretches. You don’t want kids to learn these lessons in college when they are alone with little guidance.

Kristina: One of the things that many parents struggle with is, giving their kids too much. Parents want to give their children the luxuries they never had.  All of this comes from a place of love, but it can also cause problems when parents give too much, and kids don’t learn the dollar’s value. 

Misty: Yes, it happens all the time and can be a slippery slope.  It’s good to make your kids earn the money they need to buy things they want.  It is also good to get kids used to waiting for what they want and need because real life isn’t always giving them instant gratification.  These lessons are better learned from you than by running up credit card bills in the future.

My kids also like to do charitable giving to an organization that means something to them.  Children are naturally generous and want to help.  Teaching kids about charitable giving early helps instill these great values.

Kristina: I’m a big advocate for letting kids save and wait for the things that they need. It is very hard to watch them be frustrated, but it’s all a part of the process and growth. For me, it is so difficult to bite my tongue and let them buy that crappy toy that they will break 2 seconds after they get home.  But most kids need to learn by doing and not by listening to your advice. Parents need to let them buy that crappy toy and let it break so that their child will make a better choice next time.

An allowance is also important for kids.  Kids don’t need to get paid for all their chores, but it is nice to give them monetized rewards for chores that are over and beyond the parent’s standard expectations.  Allowances allow kids to experience and play with money so they can learn.  Kids won’t learn from reading about it. They need to interact with money, spend it, save it, etc., to really understand its value.

At what age would you recommend for parents to open up a bank account for children?

Misty:  It depends on the type of account and what the reasoning for the account is. To save for college, I suggest a 529 plan; the sooner, the better. Some bank accounts now are made for kids and come with their own debit cards.  These are great for teaching kids about money, and I recommend starting those kinds of bank accounts around age 8-12.

Kristina: I know many parents worry about being a financial burden on their children. Do you have any advice for them?

Misty: Yes, I hear that concern a lot. Most people don’t retire on the day they expect.  The majority of people stop working due to injury, inability, health, or job elimination.  To make matters worse, you can’t borrow money from the bank for retirement.  That is something everyone needs to prepare for and expect.

Saving for retirement is very hard when you’re thinking about what’s going on right now like your kid wants dance lessons. The dance lessons feel like the most important thing right now, but it’s really just the thing that’s right in front of your face.  It is the thing that is happening today.

Parents need to talk with their employer and discover workplace benefits like life insurance and 401 K plans.  If you’re self-employed, get an advisor to help you put money away for future you.

Kristina: What would be the first steps for a parent who wants to start saving right now?

Misty:  Start working with your employer for additional benefits. See if they have anything available in terms of retirement plans. Some companies get a tax break to help their employees.  I also suggest having those saving come directly out of your paycheck automatically.  This is much better than deciding between saving for retirement and giving the kids more dance lessons. A direct withdrawal before your paycheck even gets deposited into your account will assure you are saving and be less stressful.

If you’re self-employed or contract work, talk to an advisor about an IRA.  

Either way, talk to a financial advisor.  Financial advisors used to be only for the wealthy, but now they are for EVERYONE. 

Kristina: What are some other major money mistakes that you see parents make?

Misty: The biggest mistake I see all the time is not having any sort of estate planning, life insurance, or plan in place for when the parents are gone. Parents say that their kids are the most important thing in the world to them and that they don’t want to be a financial burden on them. Still, then they have no plan and no custody agreement in place for an expected or unexpected death. If you don’t make these plans and have them in writing, your children may not be left in the care of the person of your choice.  I know for me, I want to make those decisions while I am still healthy and happy.

Keep in mind that these plans are probably cheaper than you think!  It doesn’t have to cost a lot of money.

Kristina: How do people contact you if they want your help, Misty?

Misty: Go to mistylynch.com.  My website has information about investment management, financial planning, and a group coaching program for working on a better money mindset.

Kristina: Thank you, Misty.  And until next time, parents, you got this! We’re just here to help.