Parents tend to tiptoe around the topic of money as if it's a squeaky toy and their children are napping nearby, but their children would likely be better off if they made some noise. That's according to a new survey by T. Rowe Price, which found that parents are largely silent, sometimes deceptively so, when it comes to discussing personal finance. About 3 in 4 parents admitted to not being honest with their children about money, including in regard to their own financial lives.
Even if parents try to avoid the topic, says T. Rowe Price financial planner Stuart Ritter, children often pick up on their anxiety. "Kids are seeing what's going on anyway, and without your context around it, they're going to draw their own conclusions," he says. That's why he recommends opening the conversation by talking about financial goals and values.
"Set a financial goal that's important for your family," he says, such as paying for college. Then, when other expenses come up, such as a vacation or a new car, parents can explain the trade-offs. Perhaps the family is taking a quick weekend beach vacation instead of a weeklong trip to put more money into the college account, for example. Kids can learn a lot from hearing how parents make those financial decisions, says Ritter.
The survey, which for the first time also included interviews with 8- to 14-year-olds, suggests that kids are hungry for that kind of information. One in five young respondents said they want to know more about saving money, and almost the same proportion said they wanted to learn more about earning money. Meanwhile, only half of parents say they talk to their children about savings goals and spending and savings trade-offs. Far fewer teach their children about inflation and investing.
Many parents avoid talking about money because they don't want to share how much they make, or even worse, have their children know and then tell their friends. (One in three parents surveyed said they specifically avoid discussion of the family's financial state.) But Ritter says there's no need to talk numbers--it's sharing values that's more important. "You're not breaking out the W2 forms, but talking about setting goals," he says.
For parents who are still squeamish about the topic, Ritter suggests starting with how money works. For example, some kids think a credit card provides an endless supply of cash. Parents can explain that they work to put money into their bank account and then use that money to pay bills, including the credit card, each month.
Previous research suggests that parents play a powerful role in shaping their children's future money habits, for better or for worse. Financial educator Mary Ann Campbell has found that money attitudes such as "live within your means" are passed on through generations. At the same time, people who saw their parents overspend and struggle with money often repeated the same mistakes themselves. Her findings led Campbell to conclude that parents should "model the behavior you want [your kids] to have."
Laura Vanderkam, author of All the Money in the World, suggests identifying your own money philosophy and the types of lessons you want to pass on. Vanderkam, a mother of three, says she first thought she wanted her children to learn frugality, just as she did growing up. "But there isn't any way to convey this same scarcity without imposing an austerity on our family that we worked really hard to avoid!" she says. Instead, Vanderkam decided that she wanted to teach her children to find work they love so they can earn money in a way that's meaningful to them. "I want them to live within their means, but I also know that sometimes you have to invest in things that matter," she adds.
Vanderkam also says it's useful to reflect on the money lessons your own parents taught you, and decide which habits you want to pass on (and which you don't). As a teen, Vanderkam launched her own summer day camp in her backyard, which taught her some entrepreneurial lessons she still applies, such as how to find customers. She wants her own children to similarly ask themselves, "How can I increase the amount of cash coming into my life?"
The T. Rowe Price survey also reveals that 43 percent of parents aren't sharing how worried they are about money, and 32 percent say they can't afford things when they actually can. That last one sounds like it could be a white lie, similar to telling a child there are no cookies left instead of telling him he can't have any more. But Ritter suggests that over time, those lies can have a detrimental effect, largely because parents miss out on the opportunities provided by such "teachable moments."
In fact, many parents have a rich source of topics to use as a jumping off point for family conversations about money: their own mistakes. Four in 10 parents said they regret not saving enough when they were younger, 1 in 3 said they regret overspending and building up debt, and 1 in 5 said they regret their choice of job or career. Even daily experiences such as a trip to the grocery store or ATM can lead to a discussion about trade-offs and choices.
That way, you can run down the chore list while also imparting lessons about saving and smart spending--not bad for an otherwise lazy Saturday.