Don’t wait until your children are nearly grown to start modeling good financial habits. The financial choices you make when your kids are at their youngest could have a bigger impact than you realize.
That’s the common theme of a 2017 T. Rowe Price study and advice from the Consumer Financial Protection Bureau, and that has me wondering what my almost 3-year-old son is picking up from watching how I deal with everyday expenses.
For example, the T. Rowe Price study found that kids whose parents have at least $5,000 in credit card debt usually spend money as soon as they get it (58 percent versus 44 percent for kids whose parents have less card debt).
The study also found that kids whose parents don’t regularly save money for things such as emergencies and retirement are less likely to set aside money themselves.
“We know that kids’ money habits are formed before they get to high school and that their parents are often their most influential teachers,” Roger Young, a senior financial planner at T. Rowe Price and a father of three, said in a news release.
Kids start modeling financial behaviors early
Even very young children pick up on financial signals from their parents.
According to researchers at the Consumer Financial Protection Bureau, kids as young as 3 are ready to start learning financial skills and behaviors crucial for success – such as waiting for a treat, setting goals and planning well ahead.
As kids enter elementary school, they become especially aware of their parents’ actions and quietly absorb their successes and mistakes.
“In elementary school, children observe their parents making day-to-day or month-to-month choices, such as paying bills, deciding what to buy at a grocery store, or discussing financial concerns or issues,” CFPB researchers wrote in a 2016 study.
But parents don’t always take the time to turn those interactions into teachable moments – perhaps because they mistakenly believe their children are too young to understand what’s going on.
As a parent, I understand this all too well. My son seems to have a good grasp of the need to buy things when we’re at the store and has enough numbers sense that he would probably understand me if I talked about how much things cost.
But I’m so used to thinking of him as a tiny tot rather than a growing boy that I don’t always realize just how much he perceives.
As he becomes more aware of his surroundings, I’ve started to feel more self-conscious about the unspoken messages that I’m sending him. Am I imparting bad financial habits already without realizing it?
Until recently, I would often give in when he pointed to a particular toy and asked to buy it. Now I’m afraid that I’m not only spoiling him, I’m teaching him to give in to instant gratification.
When to teach financial lessons
According to the CFPB, the preschool years are the ideal time to start reinforcing financial lessons about waiting for rewards and regulating behavior.
I’ve also wondered how much he notices when I impulsively throw something into my shopping cart without glancing at the price or toss a shopping bag into my closet behind my husband’s back.
If my son hasn’t caught on now, he will eventually. I still remember when my mom would come home from a shopping trip and tiptoe around my stepdad so he wouldn’t see how much she bought.
Her tendency to hide purchases likely influenced my own reluctance to fess up to my husband when I splurge.
According to the CFPB, parents should start modeling good financial decision-making while their kids are still young enough to mimic their parents rather than their peers. Parents also should talk to their kids about what mom and dad are doing financially.
For example, tell your child that you’re delaying a purchase for yourself until you’ve saved more money. Or talk about the budget that you’ve created for your family and how you’re sticking to it.
Make time to talk about money
It also can be beneficial to talk to your kids about how you’ve managed to stretch the dollars that you’ve saved or to explain what tradeoffs you’re making to avoid a sudden financial shortfall.
According to the T. Rowe Price study, parents who discuss financial topics with their kids at least once a week are more likely than those that do not to have kids who say they are smart about money (64 percent to 41 percent).
And don’t stop talking to your kids once they turn into surly teenagers.
According to the CFPB, older kids tend to value their friends’ judgments more than their parents, but their family members’ values can still make a lasting impression.
“Although attitudes and values take root in early and middle childhood, they continue to be refined through the teen and young adult years,” the CFPB researchers wrote.
See related: To raise savvy consumers, talk to your kids, set limits, Money and credit games to play with the kids, More parents giving their kids credit cards, 4 wrong money lessons for kids (and 4 right ones)