Your Spending Behavior Influences Your Children

Anyone who has ever had a child knows the powerful pull of peer pressure. When it comes to spending, budgeting, and saving, it's not a child's peers that exert the most influence.

It's their parents.

A University of Cambridge study found that children's money habits are typically formed by age seven. Further research published in the Journal of Family and Economic Issues reinforces this concept, demonstrating that parents are the primary influence on their children's financial attitudes and behaviors.

The Impact of Observed Behavior

Children are astute observers of their environment, often picking up on subtle cues and behaviors that parents may not realize they're exhibiting. When it comes to financial matters, children may internalize:

• Attitudes toward spending and saving.
• Reactions to financial stress or success.
• Approaches to budgeting and financial planning.
• Habits related to impulse purchases or delayed gratification.

For instance, a child who regularly observes a parent making impulsive purchases may internalize the idea that immediate gratification is more important than long-term financial planning. Conversely, a child who sees their parents regularly setting aside money for savings might be more likely to adopt similar habits in the future.

On the other hand, financial stress in the household can profoundly impact children's attitudes toward money. A study published in the Journal of Financial Therapy found that children who grow up in households with high levels of financial stress are more likely to develop problematic financial behaviors in adulthood. This finding doesn't mean parents must shield their kids entirely from financial challenges - age-appropriate discussions about financial difficulties can provide valuable learning opportunities. The key is how these challenges are framed and addressed.

Modeling Positive Financial Behaviors

Given the significant influence of parental behavior, modeling positive financial habits can be one of the most effective ways to instill good financial practices in children. These habits might include:

• Demonstrating thoughtful spending decisions.
• Openly discussing the process of creating and sticking to a budget.
• Showing the importance of saving for both short-term and long-term goals.
• Exhibiting a balanced approach to money that includes spending, saving, and giving.

It's important to note that perfection isn't the goal. In fact, allowing children to see how you navigate financial challenges or correct financial missteps can provide valuable lessons in resilience and problem-solving.

The Role of Financial Conversations

How families discuss money also plays a significant role in shaping children's financial attitudes. A study by T. Rowe Price found that children whose parents frequently discuss financial matters with them are more likely to feel knowledgeable about money and financial concepts.

However, the nature of these discussions matters. Conversations that frame money positively as a tool for achieving goals and contributing to society can foster a healthy relationship with finances. However, discussions that consistently frame money as a source of stress or conflict may lead to anxiety or avoidance of financial matters in the future.

Strategies for fostering positive financial conversations include:

• Use everyday situations as teachable moments. Grocery shopping, for instance, can be an opportunity to discuss budgeting, comparison shopping, and the difference between needs and wants.
• Frame money as a tool rather than a goal. Emphasize how money can be used to achieve objectives or help others rather than as something to be accumulated for its own sake.
• Be honest about financial limitations. If something isn't within the family budget, explain why in age-appropriate terms.
• Discuss financial news or events. Talking about broader economic issues can help older children understand how personal finance fits into the larger economic picture.

Involving Children in Financial Decisions

Allowing children to participate in age-appropriate financial decisions can provide practical experience and reinforce positive financial habits. This might include:

• Giving children a say in family spending decisions, such as choosing between different vacation options within a set budget.
• Encouraging children to save for their own goals, whether it's a new toy or a contribution to a charity they care about.
• Involving older children in discussions about more significant financial decisions, like saving for college or making major purchases.

These experiences can help children develop critical thinking skills about money and understand the real-world applications of financial concepts.

The Takeaway

Children can and do develop their own financial attitudes and habits as they grow. The goal of parental financial modeling is not to dictate a child's every financial move but to provide a solid foundation of knowledge and habits that they can build upon as they develop their own relationship with money.

Remember, the goal isn't perfection but progress. Every positive financial behavior modeled and every constructive conversation about money contributes to a child's developing financial understanding - and encourages a healthy relationship with money in the future.