5 Money Mistakes You May Be Teaching Your Kids (And How to Stop)

Dec 09, 2020

“Money doesn’t grow on trees.”
“Money makes the world go around.”
“Money can’t buy happiness.”
“A penny saved is a penny earned.” 

Let’s be real. As parents, we may be able to rattle off wise words about money, but we don’t always live by them. And, guess who’s right there taking note of what we say – and what we do? Our kids!

Research backs it up. How parents manage money is the number one influence on how adults handle their finances.1

So, what are the financial lessons – intentional and unintentional – you are teaching your children? And, more importantly, what can you do to clean up a few bad habits before you pass them on to the next generation?

Read on for five common money mistakes and how you can help your kids avoid making them. 

Money Mistake 1: Making money feel mysterious 
When all we do is swipe and tap, it’s no wonder kids think there’s an endless supply of money in your magic plastic card or flowing through your smartphone.

The Fix: Make money tangible.

  • Don’t just teach your kids about the denominations of bills and coins, use cash in real-life. (Even if it annoys the people behind you in line at the grocery store.) There’s no clearer way to demonstrate when you spend money, you get something in return, but you no longer have the dollar bills in your wallet.
  • Look for opportunities to connect your physical banking activities with digital monitoring of your accounts. Show what happens to your your bank balance in your mobile banking app after you make a debit card purchase or withdraw money from an ATM. Demonstrate how you make a mobile check deposit and how you keep track of what you earn and what you spend.

Money Mistake 2: Not setting – and sharing – a budget
If kids don’t know all the different types of household expenses and how much food, shelter, clothing – and occasional tickets to a sporting event – cost, it will be a big shock when they leave the nest. 

The Fix: Make budget management a family project.

  • Start including your kids in budget discussions when they’re in grade school. Talk about the process and explain how you prioritize spending decisions, especially when the budget is tight. Ease into it. You want your kids to understand budget basics, but you don’t want to make them worry about money.
  • Get children as young as five involved in saving for a family goal, like an event or vacation. Talk about trade-offs you’re making to save money, such as forgoing a fancy coffee drink or packing a lunch to take to work. Let your kids contribute to the savings. They’ll have more of a stake when you achieve your goal.

Money Mistake 3: Saying, “We can’t afford it”
There’s nothing wrong with teaching your kids what you can and can’t afford. But, don’t make that the full explanation. Experts point out young kids don’t really understand what saying you can’t afford something means. (And, when they’re old enough to understand the concept, they’ve already heard it so much, they tune it out!)

The Fix: Always explain.

  • Take every opportunity to help children understand the considerations behind a purchase decision. Explain, “We can’t buy that toy because we’re saving for our vacation.” Or, “I understand you want the latest smartphone, but you don’t need it. Yours still works great.” Even if they don’t like the answer, they will remember the rationale.
  • Talk about the choices you make as you decide when to spend money – and when not to.

Money Mistake 4: Giving kids “free” money
Sure, the “Bank of Mom and Dad” is a part of raising children. But, try not to set a precedent for always caving in and buying things whenever kids ask. That’s like handing out money, and it will be a hard habit to break once your child hits the teen years. 

The Fix: Make them earn it.

  • Start paying your child an allowance for completing basic chores at age 5 or 6. This cements the idea that money is earned. A recommended rule of thumb for allowances is $1 per year of age, but that’s up to you.
  • Once your kids are earning an allowance, it’s time to introduce the concept of saving. Let them decide how they want to spend their money (within boundaries, of course!). When they don’t have enough, help them set goals and save the money needed over time.
  • Open a Youth Savings Account at Arizona Federal with your child. It’s simple – $0 is required to open an account, and there are no monthly service fees.

Money Mistake 5: Impulse buying 
Resist the temptation. Too much giving in to “After the day I had, I deserve this… even though I really shouldn’t spend the money on it right now,” can send the wrong message to your children. 

The Fix: Save the splurges for special occasions. 

  • Share the hard lessons learned if you’ve spent more than you can afford. Your kids will learn from your real-life experiences with debt and credit, even when they’re painful.
  • For older teens ready to leave home, teach them about credit and how to use it wisely. It’s not too early to talk about the importance of establishing a good credit score by paying bills on time, keeping balances low, and not taking on more credit than needed. When it’s time to get a card of their own, start with a Visa Secured Credit Card from Arizona Federal, which secures the card with a deposit while helping to build a credit history.

With a few adjustments to your money habits, you can share practical lessons that will serve as a foundation for your children’s financial future. For extra support, check out Arizona Federal’s Money Talks Guides for Parents or Grandparents – step-by-step guides to teaching your kids about money, along with our Money Milestones Map to track their progress from preschool through young adulthood.  

1 The Harris Poll on behalf of TD Ameritrade, November 2018.