America is one of the wealthiest countries in the world, yet, things aren’t perfect for every American out there. For example, it’s estimated that nearly 50% of Americans won’t retire with enough money to sustain their current lifestyle. If you’re a parent, you don’t want your children to become part of this statistic. Instead, you want them to be financially stable and manage their money correctly. But for that to happen, you first need to teach them about money. And while you may think you’re doing a great job, there’s a chance you could be making mistakes without even realizing it. Here we listed 10 mistakes parents make in teaching kids about money.
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- 10 Tips for Household Money Management
- Explain Money to Children, 11 Reasons Why it is Useful
- How Young is Too Young to Understand Money?
- Money Lessons for Kids? Values, Saving, Spending and Giving
Table of Contents
How Financial Education Can Help Your Child Succeed
Before we start dissecting the topic, we need to establish one thing – the importance of financial education.
You see, most schools don’t have a dedicated financial education class. And while some states are now including it as part of their curriculum, it’s not mandatory yet. That means it’s up to you, as a parent, to ensure your children are getting the proper financial education they need.
Why is this so important? It can help them avoid making some of the common money mistakes we’ll discuss later on in this article.
But more importantly, it can set them up for success in their adult life. They’ll know how to save money, how to budget, and how to invest. As a result, they’ll be less likely to experience financial difficulties.
10 Mistakes in Teaching Kids about Money
So, with all of that in mind, let’s look at these mistakes in teaching kids about money.
1. Not Talking About Money Early Enough
You might think that your children are too young to learn about money, but that couldn’t be further from the truth. The sooner you start talking to them about money, the better off they’ll be.
According to a study by Cambridge University, children as young as three years old can already start understanding basic financial concepts.
So please don’t wait until they reach their teens to start having conversations about money with them. The earlier you start, the better equipped they’ll be to deal with financial issues later.
2. Only Teaching Them About Saving
One of the most important things you can teach your children about money is how to save it. But that doesn’t mean that’s the only thing you should focus on.
Your children also need to learn about other important aspects of personal finance, such as investing, budgeting, and credit.
If you only teach them about saving, they may not be prepared to deal with more complex financial situations later.
3. Not Giving Them an Allowance
One of the best ways to teach your children about money is by giving them an allowance. That will give them a chance to earn and manage their own money from a young age.
It’s important to note that you shouldn’t tie your child’s allowance to their chores. Instead, you want them to learn that they can earn money even if they don’t work around the house.
4. Not Letting Them Make Mistakes
Ironically, one of the biggest mistakes you can make is to try to prevent mistakes in the first place. Taking control away from your child may prevent short-term damage, but it’s not beneficial for your offspring in the long run.
Therefore, it’s essential to let your children make mistakes with their money, and that is the only way to learn from their mistakes and become better with money. Of course, you shouldn’t let them make any significant financial blunders. But it’s okay if they spend their allowance on something they later regret.
5. Giving Them Too Much Money
If you give your children too much money, they’re not going to appreciate it as much as they should. So it’s essential to teach them the value of money by making them work for it, and start slowly by giving them small amounts in the beginning.
One way to do this is by giving them an allowance based on their age. For example, you could give them $10 per month for every year they’re alive. By the time they reach adolescence, they’ll have a nice allowance.
Find a balance when it comes to giving your children money. You don’t want to give them too much, but you also don’t want to deprive them.
6. Not Teaching Them About Needs vs. Wants
One of the most important lessons you can teach your children about money is the difference between needs and wants. Just because they want something doesn’t mean they need it.
You can explain this concept by using a simple example. Your child asks you for a new toy that costs $50. You can tell them that while they may want the toy, they don’t need it.
On the other hand, if they need new clothes because their old ones are too small, you would be more inclined to buy them.
7. Not Teaching Them About Taxes
One of the biggest financial lessons your children need to learn is that not all their money is theirs to keep. In addition, they need to know that they’ll have to pay taxes on their income, whether from an allowance, a part-time job, or investments.
This may seem like a complex concept for young minds to grasp, but it’s not that difficult. You can explain it to them in simple terms using examples from their everyday lives.
For instance, you could tell them that when they buy something at the store, they’re paying two prices: the item’s price plus the tax.
8. Failing to Explain credit
Another essential financial lesson your children need to learn is about credit. Just because they have a credit card doesn’t mean they can buy whatever they want. They need to know that they’ll have to pay interest on their purchases if they don’t pay off their balance in full every month.
You can explain this concept by using an example from your own life. You have a credit card with a $1,000 limit, and you currently owe $500.
If you only make the minimum payment each month, it will take you years to pay off the debt, and you’ll end up paying hundreds of dollars in interest.
9. Not Teaching Them About Investing
They need to know that they can grow their money by investing it in stocks, bonds, and mutual funds.
You can explain this concept by using an example from your own life. You invested $1,000 in a stock that went up 10% last year, which means your investment is now worth $1,100.
If you had left the money in a savings account, it would only be worth $1,010 because of inflation.
10. Not Having Regular Money Conversations
We’ve saved the most obvious for last.
The most damaging mistake a parent can make is not having regular money conversations with their children. You need to talk to them about money regularly, whether it’s about their allowance, spending habits, or the family’s financial situation.
The earlier you start having these conversations, the better. That way, your children will be more prepared to make sound financial decisions when they’re older.
The Bottom Line
Teaching your children about money is one of the most important things you can do as a parent. By instilling good financial habits in them early, you’ll set them up for a bright future. Just be sure to avoid these 10 mistakes in teaching kids about money.
About Me
Hi, there. I am Lin. Together with my husband and two kids, we live in the beautiful Netherlands in Europe. I am dedicated to self-development, creating quality time for the whole family, and fully supporting kids with their potentials with all I have learned from engineering, MBA, and 10+ years of working experience in the energy sector.
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