Getting it right for our children
Children have a way of making money vanish.
But in part, parents are responsible for some of the biggest mistakes their kids make with their finances — such as failing to budget, frittering, racking up debt, invalidating their insurance, and taking advantage of goodwill.
We’re too busy to sit down with our children and talk through money, says Jenny Hale, senior family coach at The Parenting Place.
Even I can be accused of this. When one of my offspring headed off on her OE recently, I realised in the final few weeks that I hadn’t had proper conversations about all sorts of money-smart topics from how to ensure her insurance isn’t voided, to the best ways to remit money overseas (like using the TransferWise app).
One of the big problems is that our children have less experience with cash than we did, says Hale. How many of us have our credit cards set up in the iTunes or PlayStation account and our young ones just need to click to make an app purchase?
Author Lisa Dudson points out that even withdrawing cash from an ATM in front of our kids makes them think money comes for free.
Some of those intergenerational financial mistakes include:
Coming to the rescue
We start socialising our children into making poor money choices at a very young age by replacing that special item the child has lost or broken. Next minute they’ve an adult and have their hand out for you to solve their problems. Learning to fall on their sword financially from a young age usually does more for the child than paying for everything they want.
Doling out money
Giving kids a large dollop of assistance can be counterproductive, says Duncan Balmer, a financial adviser at Balmer, Jeffs and Company. “Some people are of the view that it is better for any person’s self-respect and self-esteem to achieve whatever they are going to achieve on their own merits, rather than with the assistance of a large dollop of unearned money by way of gift or interest-free ‘loan’.”
Encouraging frittering
Our children are bombarded with advertising and marketing, says Hale, which encourages them to fritter rather than save for what may seem impossible dreams. “There is the pressure to have the right gear to be seen,” she says. “Some kids are what they wear and get their sense of belonging through what they have and what they are involved in.”
The frittering of money on food in particular learned in their teens goes with them into working life. It quite literally eats up their earnings.
Not budgeting
Parents encourage this if the child’s income isn’t fixed. Budgeting teaches that money is finite and that the Huffer shirt they have just bought isn’t affordable on their income. If they’re not given limited pots of money they have to juggle then they don’t learn how to make ends meet.
Going into debt
Once you turn 18 it’s easy to borrow money and if you think that everyone around you, including your parents, are doing the same it’s a slippery slope into five-figure debt.
Going guarantor
We think we’re helping when we go guarantor or co-borrow for our child’s car or house. Not all the recipients of their parents’ generosity understand, acknowledge or respect what is done for them. I had a heartwrenching email from a reader who had his financial future wiped out thanks to going guarantor on a house that his daughter subsequently lost.
Failing financial education
Despite numerous great financial tools and school-based programmes for our young people, not all are learning the basics about earning, saving, spending, investing, debt and insurance. Financial Services Complaints Limited, which is an independent dispute-resolution service, deals with the fallout of many such poor decisions by parents that help lead the next generation astray.
Remember, says Hale, you need to let your children learn to deal with disappointment by not giving them everything.
Let them make the decision to buy a single piece of designer clothing instead of six such items at Kmart. Learn to say no and let them make mistakes with their money early. If they grow up in a financial vacuum they could suck the lifeblood out of your finances.