Written by Team ParentCircle and published on 17 July 2021.
Children learn important lessons about finance by watching how adults handle money. Read on to know the money-related blunders parents should avoid with children.
Parents often think that it may be unwarranted to introduce the concept of money into the innocent lives of children, because they are at an age when they should be investing their energy into play and learning. However, they forget that knowing about finance too is essential learning for children. While children learn various subjects at school, they learn little about the basics of money and management of expenditure.
Parents often shield their children from financial woes and dealings, since they somehow feel responsible for handling money matters themselves. However, studies have shown that introducing children to money-related concepts, and helping them participate and understand money transactions is highly beneficial for their future. The Consumer Financial Protection Bureau in a report in 2015 pointed out that parents were critical to the financial literacy of their children.
Let us take a look at some of the common money mistakes parents tend to make:
1. Avoiding money-related discussions with children ? It may seem that children are too young or naive to understand money management, however, they will surprise you with how much they learn by watching you. Not talking directly about money will only confuse them, so it is advisable to be upfront about finances. Lecturing about how much every toy costs or what you spent on every restaurant visit may not be ideal, but giving them an overall sense of how transactions are made, will help them understand how money is used.
2. Indiscriminate spending to fulfil all the child's wants ? Many parents often give in to the demands of their children, when out shopping or when they insist on getting what their friends have. Succumbing to your child's demands will not only increase the pattern of getting what they want, it will send the wrong message that they need to have everything that another child possesses. This will be detrimental in their understanding of the value of things. This could also lay a dangerous precedence for the future, as they grow up thinking they will get what they want.
3. Believing that a little does no harm ? Once in a while, we indulge our children by giving them money to buy things. Doing this on rare occasions is not harmful. But small change adds up to big amounts and a regular flow of money to children, without keeping a tab on the amount spent, can lead to irresponsibility. Children will believe that they are not answerable for what they spend. It is fine to give your child pocket money, but at the same time ensure accountability and awareness of judicious spending.
4. Hiding financial woes ?There is no harm in giving children a sense of the financial burden and liabilities that you incur, or telling them about a financial crisis that you may be experiencing as a family. Without giving details, you can speak about the problem so that children know why certain unnecessary spending has been curtailed at home. They will also learn what it means to be austere, which will help them in the long run. Arguing about money in front of children is unhealthy since they do sense something is wrong, yet, are unable to understand it clearly.
5. Not explaining the concept of plastic money ? Unabashed use of credit/debit cards and online modes of payments will send a wrong message to your child. While you should be careful about not giving your credit cards to your child for indiscriminate use, explain to her, in simple terms, about cashless transactions and plastic money. Take your child along with you to the bank while depositing money or to an ATM while withdrawing money. This will help her understand that the cards are just a medium to access the actual cash.
6. Refraining from discussing the cost of things ?There is no need to give your child a low-down on the cost of everything that you buy for him. However, it is not a bad idea to let your child know the cost of his toys or favourite candy, occasionally, to make him realise the value of hard-earned money. Take your child to a supermarket for buying monthly groceries and explain how and why you spend on essential items.
7. Being dishonest about money ? Children learn values from their parents, so be transparent with your financial transactions. It is important to raise your children in a honest household that follows clear and correct financial methods which are devoid of suspicion and stealth. Upright and sincere parents are the perfect role models for their children.
Some of the mistakes that parents make in terms of financial lessons for children, determine their outlook towards money and economics in the long term. Also, it is necessary to avoid these mistakes so that our little ones will know that there are some things that money cannot buy.