“Do as I say, not as I do,” is a favorite phrase for many parents, even though we all know it’s not a great way to parent. No matter what you say, your children are going to learn a lot by your example, whether that example is about your eating habits, lifestyle choices, or even financial planning. Believe it or not, even elementary aged kids are paying attention to how you use and abuse your money, and how you plan your financial life – or whether you plan at all!
You know that your financial planning will affect your children’s future directly through things like college savings and an emergency plan should something ever happen to you, but how else does your financial planning affect your children? Here are just a few ways that your poor financial planning could be wrecking your children’s futures:
No Savings for College
One of the obvious problems with poor financial planning on the part of parents is lack of college savings. If you aren’t carefully budgeting and following a savings plan, chances are likely that you aren’t saving for your child’s college education. According to FinAid.org and the Bureau of Labor Statistics, children born now will pay three to four times today’s going rate for college by the time they get there. Right now, the average debt of an undergraduate student is about $12,000, at the very least. Families who save for college early, though, are less likely to burden their children with school loan debt as soon as they graduate from college.
If you’re not saving at least a little bit for your child’s education, start now with a college savings plan, such as a 529 plan, which comes with some tax advantages when you contribute.
No Savings for Retirement
Even more important than saving for your child’s education is saving for your own retirement. Sure, your children will be affected by lack of educational savings before they’ll be affected by your own lack of retirement savings, but if you don’t have any money to retire on, who is going to end up footing the bill? Most likely, your then middle aged children!
One study cited by an MSN.com finance article says that about half of parents save for their children’s educations before saving for their own retirement. Even though 71% of parents say that they don’t want their children to be burdened by taking care of them when they’re older, they’re failing to prepare for a future in which that’s possible. Parents saving for children’s educations first are creating a vicious cycle in which their middle-aged children will end up cash-strapped by helping foot the bill for mom and dad’s retirement home while still supporting their own children, which will leave them, in turn, unable to save up for retirement!
So if you don’t already have a retirement savings plan in place, think about your children’s long-term futures and get one!
Living Beyond Your Means
Besides failing to provide for your children financially because of a solid financial plan, lack of planning often leads to living beyond your means. This leads to a whole host of problems for children. Here are just a few:
- Children who get almost everything they want just by asking don’t understand the value of hard work or the worth of a dollar, which leads them to overspending when they have their own finances to run.
- Living beyond your means on a regular basis to “keep up with the Joneses” can create a sense of entitlement for an entire family, which can have dire consequences for children down the road.
- Children watch their parents continually spending money without understanding where it comes from, which can lead them to drastic overspending in the future.
- Living beyond your means inevitably leads to financial stress and strain at some point, and your children will definitely feel the stress that it can bring into your marriage and family life.
If you find yourself constantly overextended, figure out where you can cut back. And it’s okay if those cut backs affect your children, too. Even elementary aged children are old enough to have conversations with you about why you are cutting out the cable, buying fewer toys, or going out to eat less often. It will probably take some getting used to for all of you, but learning to live within your means sets a good example for your children and helps your family life become less stressful.
All Plastic, All the Time
Kids who grow up in a household where parents charge everything on a plastic card don’t grow up understanding the reality of finite money. Even very young children can understand that once you spend cash, it’s all gone. But if you’re constantly racking up credit card debt and using nothing but plastic to pay, you aren’t teaching your children that financial resources are limited and should be used wisely.
This isn’t to say that you should never go into debt for anything. You can get some useful credit card deals that may help you save points for a family vacation, purchase a big-ticket item that you can pay off over time, or help smooth over some cash flow issues during tough times. Just realize that if you’re constantly swiping your card, your kids see that, and they essentially grow up thinking that all you need is one of those plastic cards to pay for everything.
To fix this problem, use cash to pay for things when your kids are with you. Pull out your grocery budget or eating out budget in cash, and let your kids see you spending it. You can also give kids cash to spend for allowances and birthdays, so they can learn what it’s like to have a limited amount of money to spend, too
Of course, it’s good to have conversations about credit cards and the advantages and disadvantages they can have once kids are a little older, but make sure you’re leading by example by having good credit usage habits.
Lead by Example
You know that as a parent your children aren’t going to develop healthy eating habits if you try to make them eat eggs for breakfast and peas at dinner while you eat nothing but donuts and fried chicken. Take that same parental knowledge and apply it to your finances. Remember, your financial planning affects your children’s financial futures as well as their own outlook on money and how it works.
Ashyia Hill is a social media advocate at http://www.creditdonkey.com/