7 Ways to Screw Up Your Kid’s Financial Future (& How to Avoid It)
You love your kids, as every parent does. You want them to live their best lives and to create favorable opportunities for themselves.
Some parents, however, have blurred vision in terms of seeing what’s best for their children. It’s not necessarily their fault. They take the lead from peers or society in general, even though those choices may not be best. Or maybe they’re too busy, so things get pushed to the side. Priority lists get mangled and messed. Goals are forgotten or neglected. All of this is understandable.
So how about a little reevaluation? Are you, as a parent, screwing up your kid’s future? Take a step back and look at the big picture for a few minutes, because it’s easy to get caught up in day-to-day life or lose sight of long-term goals for our kids.
One of my friends has a 12-year-old daughter who plays soccer. I recently went to one of her games. There were a plethora of soccer moms and soccer dads in attendance. All of them were there for the same reason–to see their child succeed.
One proud father said something that struck me. I will paraphrase.
“Cindy won’t ever have a job until she graduates from college. I’ll make sure of that. I want her to have all the fun that she can while in high school and college. She deserves it. And I’m glad that my wife and I can support her with that choice.”
Want more articles like this?
Create an account today to get BiggerPocket's best blog articles delivered to your inboxSign up for free
“Hmm… is that the best option?” I thought.
What if Cindy never learns the value of a dollar? What if she becomes spoiled and always turns to Dad to help her out when she runs out of money or overspends on her credit card? What if Cindy doesn’t take college seriously because she has no skin in the game? What if she has a weakened work ethic because she has always gotten things handed to her?
I completely understand a parent’s desire to make their child’s life easy. We don’t want to see our kids struggle. It’s tough to watch.
But what if the struggles are what makes them tough, smart, and driven?
Below I briefly discuss several ways you can screw up your kid’s future, including (I’m looking at you, Mr. Soccer Dad) by not allowing them to have a job.
How to Screw Up Your Child’s Financial Future
Don’t let them work part-time
If you have a child who is of working age (16 or older in most states), then have them work. It could be as simple as a babysitting gig or mowing the elderly neighbor’s yard for $10. Or it could be a W-2 job at a local restaurant or retail store. Lifeguarding, tutoring, and bussing tables all count, too.
Whatever the job, it will teach responsibility. It will teach the value of a dollar. It will teach the importance of commitment, of being trustworthy, and (in some positions) of customer service skills. They will learn far more than the job skills needed to earn the paycheck. They’ll learn how to deal with a demanding boss or co-worker. They’ll learn how to be on time. They may have to do an interview–something all young people should have to experience before they graduate high school.
They’ll also feel the pride of a job well done. They’ll feel a sense of satisfaction when they see their direct deposit pay in their bank account. They’ll take care of items they buy with their earned income with care and pride.
In short, they’ll be in a much better place than the college grad who’s never worked a day in his or her life.
Don’t give them a credit card
If a parent doesn’t allow their child to have a credit card before sending them off into the real world, they are setting them up for disaster. This live-and-learn approach can work for some aspects of life—but not a credit card.
Too much is at stake. Don’t let your child become one of the millions of maxed out 20-somethings.
Without proper instruction and training, a young person is likely to rack up credit card debt to eyeball level as soon as the marketing companies target them on their Instagram accounts (or wherever it may be). Now is the time to talk to them about this tool. Give them limits, give them accountability, and give them some freedom.
Let them make those early mistakes while you still see, guide, and mentor them every day.
Don’t pay your bills with them
There is a golden opportunity in most households every month to teach your child about personal finance. Most ignore it.
The monthly ritual of paying the family bills is probably not looked at as prime quality time with the kids, but it is a magnificent learning opportunity. Open your books and show them the income and expenses of the small business known as your family. Have them click the mouse as you do your online bill pay or transfers.
Explain to them why money goes here and not there. Ask them if they notice any issues or problems, and if so, what they think would be smart adjustments. Make them an active partner.
Ignore money talk at dinner
Another opportunity to educate your kids about personal finance is at the nightly dinner table—or while driving in the car, walking the dog, making breakfast on Saturday morning, or browsing the grocery store aisle). In addition to asking your child about their day at school or how their best friend is doing, talk about your index fund performance, your rental property, or your employer’s 401(k) match.
Give them hypothetical money situations and ask them to analyze the pros and cons of the options. For example: “Pretend you just won $100,000 in the lottery. What would you do with the money?”
Buy them things they don’t need
Alright, I’ll admit parents should do this sometimes, but there is a danger. Don’t be that parent who spoils their kid just because you can.
What are your motives? Are you doing what’s best for your kid? Are you buying them the newest and coolest shoes because they earned them as a well-deserved gift, or are you buying them so that they can show them off to their friends or because they complained and begged enough? If it’s the latter, reassess your motives.
All parents want their kids to be happy. But we shouldn’t always opt for the short-term benefit of their happiness without looking at the long-term effect. If we teach our kids that they always get what they want, what happens when they don’t?
There are times to spoil your kids. The holidays are an example. But on a day-to-day basis, there needs to be discretion. Kids will persevere. They will thank you later when they are old enough to realize that the world is not always fair.
Don’t encourage them to save money now
This one is HUGE! If you wish your child to have a lifelong struggle with money, then train them to spend every dollar they receive or earn. It is the American way, after all.
On the other hand, you could train your child to save 10 percent (at least) of what they receive or earn. Whether the money is a gift or a paycheck, the very first thing they should do is save a portion. Always. Remind them of this every time they receive money until they do it automatically.
Help them create a savings account where the saved money sits. Talk them through the options for that money. They can put it in an online savings account and earn around 2 percent (as of late 2019) and keep it safe. They could invest it in a bond (also safe). They could invest in their favorite company’s stock (not so safe, but there are possibly higher returns). They could invest in an index fund (safer than company stock, but maybe not as profitable).
Maybe they could donate some of it? Or they could use it to buy a large purchase for themselves after careful consideration and ample time. The learning opportunity here is so important, as you’re teaching them to save and then to thoughtfully determine where that saved money will go.
Send them to a college you/they can’t afford
Here’s another great American tradition. As a country, we believe our children have to earn a college degree, and it has to be from the best (meaning most expensive) school they happen to get accepted. After all, it feels good to tell our friends that our kid will be attending Pepperdine or Cornell or Vanderbilt next fall.
“We are so proud of Jimmy.”
Yeah, maybe you're proud of him. But he won't be proud of you when he's 35 and still handcuffed to college loan debt and unable to take several potentially lucrative or fulfilling opportunities. All of that because he took that college graduation picture with you that now sits on your mantel, proudly displayed for all visitors to see.
No, instead he will ask you why you never mentioned the option of attending the in-state public university—or better yet, the local community college for two years first.
“Man, oh, man!” says Jimmy. “If only I would have done that instead of racking up $50,000 of college loan debt!”
Carefully examine all post-secondary options and discuss them with your child. Don’t let pride get in the way of rational thought. Don’t overspend (therefore over-borrowing) for an education that is perhaps only marginally superior to a much more affordable option.
Try to appreciate that Jimmy’s real legacy lies in the numerous available options after graduating debt-free that otherwise will drown in that sea of student loans—particularly if the debt incurred was mostly just to boost his parents’ pride.
Which of these seven financial missteps do you think is most prevalent among parents in our society today? What are other ways parents can screw up their child’s future (and ways to avoid doing so)?
Let’s talk below in the comment section.