Why Most Parents Fail at Teaching Money Management (And How You Can Succeed)
As a parent of three boys, I get it—raising kids is no easy feat. We all want the best for our children: for them to grow up healthy, happy, and financially secure. Yet, amidst the chaos of everyday life, it’s easy to overlook one crucial aspect of our influence: being a positive financial role model.
The Problem
Children Learn by Watching: Kids are keen observers. They mimic our behaviours and attitudes, often picking up our financial habits—good or bad. Research shows that children as young as three years old can grasp basic financial concepts, and by age seven, many of their money habits are already set^. If they see us spending recklessly or avoiding financial discussions, they’re likely to adopt similar behaviours.
Money as a Taboo Topic: Many families treat money as a taboo subject, shrouded in secrecy and discomfort. I’ve had countless clients tell me, “I wish my parents spoke about it. It was only in my mid-20s that I learned a little bit myself.” This lack of openness can leave children ill-prepared to manage their finances as adults. Studies have shown that avoiding financial discussions can lead to financial anxiety and poorer financial decision-making in adulthood*.
The Ripple Effect of Blame: Blaming external factors for our financial missteps sets a dangerous precedent. It teaches children to shirk responsibility rather than owning their actions and learning from them. Instead of pointing fingers, focus on what you can control and how you can improve.
Intergenerational Wealth Loss: The statistics are alarming—approximately 70% of wealth is lost by the second generation, and a staggering 90% by the third generation^*. This underscores the importance of teaching our children to manage money wisely, ensuring that wealth is preserved and grows across generations.
The Psychological Impact
Modelling Behaviour: Albert Bandura’s social learning theory emphasises that children learn behaviours by observing and imitating others. If parents demonstrate good financial habits, children are more likely to adopt these behaviours.
Emotional Influence: The emotional tone set by parents around money can significantly impact children’s financial attitudes. Research suggests that positive reinforcement and open communication about money lead to healthier financial behaviours in children.
Cognitive Development: Discussions about money help develop children’s cognitive skills related to financial decision-making. Engaging children in financial planning can improve their numerical and analytical skills, fostering a better understanding of the value of money.
The Solution
Show Them the Basics: Demonstrate the importance of budgeting. Involve your kids in discussions about household expenses and savings goals. When they see you planning and prioritising, they will learn to do the same.
Practise What You Preach: If you want your kids to save money, show them how you save. Open a savings account together, set goals, and track progress. Celebrate small milestones to keep the motivation high.
Be Transparent: Talk openly about money. Discuss your financial successes and failures. Transparency builds trust and provides valuable lessons.
Start Early: Introduce financial concepts to your kids at a young age. Simple discussions about saving and spending can lay a strong foundation.
Make It Normal: Integrate money talk into everyday conversations. Discuss financial decisions openly and honestly. This normalises the topic and removes the stigma.
Encourage Questions: Create an environment where your kids feel comfortable asking about money. Answer their questions patiently and thoughtfully.
Educate Yourself: Financial literacy is a journey. Take time to learn about budgeting, investing, and managing debt. Your enthusiasm for learning will be contagious.
Make It Fun: Turn financial education into a fun family activity. Games, challenges, and rewards can make learning about money engaging and memorable.
Be Consistent: Consistency is key. Regularly involve your children in financial decisions, big or small. Over time, these lessons will become ingrained in their mindset.
Conclusion
Being a good financial role model isn't just about teaching your kids how to manage money—it's about instilling values of responsibility, accountability, and foresight. By taking charge of your financial behaviour and leading by example, you can set your children on a path to financial success. Remember, if you want your kids to be financially responsible, you must first demonstrate what that looks like. I know it can be hard, but stop blaming others and start being the change you want to see in your family's financial future.
As a parent of three boys, I understand the challenges, but I also know the immense rewards of guiding your children towards financial wisdom. Let’s take this journey together, one step at a time, and build a brighter financial future for our kids.
About the Author
John Cachia is a seasoned financial adviser and dedicated parent of three boys. With a passion for financial literacy and wealth management, John has been in the industry since the young age of 14. His early start in finance has provided him with a wealth of experience and insight, which he now uses to guide families towards achieving their financial goals. As Australia's leading wealth adviser for young families, John is committed to helping parents become positive financial role models for their children, ensuring a secure and prosperous future for the next generation.
References
^Wealth Management. (n.d.). Intergenerational Wealth Planning – Why is it So Hard? Retrieved from [https://www.wealthmanagement.com/wealth-planning/intergenerational-wealth-planning-why-it-so-hard](https://www.wealthmanagement.com/wealth-planning/intergenerational-wealth-planning-why-it-so-hard)
*T. Rowe Price. (n.d.). Intergenerational Wealth Transfer. Retrieved from [https://www.troweprice.com/financial-intermediary/us/en/insights/articles/2021/q4/intergenerational-wealth-transfer.html](https://www.troweprice.com/financial-intermediary/us/en/insights/articles/2021/q4/intergenerational-wealth-transfer.html)