While it’s a fact that the average parent wants to be a good financial role model for their child, many parents today don’t know where to start as they face financial difficulties of their own.
According to a survey by investment management firm T. Rowe Price, over two thirds of parents said that, when it comes to setting a good financial example for their children, they are “very or extremely concerned” about doing it. Even worse, nearly 25% of parents surveyed admitted that they are “not good with money” and don’t believe that they should be the ones to teach their kids about how to handle it.
Many parents admitted in the survey that they simply don’t want to talk to kids about finances because they don’t want them to worry about financial challenges that their family might be facing, while others believe that they’re simply not prepared well
“A lot of parents think they don’t know enough about money themselves, so they’re reluctant to talk about it,” said Stacy Francis, a New York certified financial planner who is also founder of “Savvy Ladies,” a nonprofit financial empowerment organization for women.
“Parents in huge amounts of debt or living paycheck to paycheck think they’re least qualified to talk to their kids when they may be most qualified,” Francis said. “They can share what’s been working and what’s not been working.”
Unfortunately, many parents believe that in order to explain finances to their child they need to have all the answers. Most financial advisors will say that this isn’t necessary and what’s more important is that they simply encourage their children to have good financial behavior, although that’s sometimes not easy to explain.
Stuart Ritter, a certified financial planner with T Rowe Price, says that ”the relationship with parents, kids and money is pretty complicated.” He goes on to say that “One of the things we learned from parents is they’ll borrow money from their kids to tip the babysitter. Hopefully they’re putting it back. And they’re bribing their kids. They’re using the money as a reward.”
Indeed, one thing that’s problematic is that, according to the T. Rowe Price report, 50% of the parents surveyed admitted that they bribe their children with money to encourage them to do the right thing. Nearly a third of them also admitted that, when things get a little “shaky” financially, they sometimes “borrow” money from financial accounts that they have set up for their children like college education funds.
Interestingly, having a “piggybank” and using cash is something that, for today’s child, isn’t nearly as prominent as it was for their parents. 924 children aged 8 to 14 were surveyed by T. Rowe Price and over half of them said that they’ve used mobile apps to make purchases and over 60% said that they’ve shopped online. A third of the parents surveyed said that they feel that cash has become obsolete.
Francis says however that getting a conversation started about finances is still easy to do with an allowance, something that might be a little old-fashioned but still works. “It’s a good way for kids to start to learn responsibility—allowing them to spend a portion now, save some for a big goal, save some for college and give a portion to charity.”
Parents have the opportunity to teach their kids about finances on a regular basis and simply need to be more proactive about it and, when it comes to money matters, incorporate them more frequently into family conversations.