Study: Parents Are Terrible Financial Role Models

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Talking to your kids about money shouldn’t be so difficult. They are generally eager to understand what it takes to earn and save, and how to set and achieve money goals. Yet parents are more comfortable discussing bullying and drugs than spending and saving, a new study shows.

That’s not all that surprising because many parents do not feel qualified to hand out financial advise, even to children. Which is a shame because no matter how little you think you know or no matter how much trouble you’ve had with debt and saving for retirement, your experience gives you practical knowledge that would benefit young people—even if the example is a negative one. But you have to have the talk for the lessons to take root.

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The kids won’t question your authority. In the Parents, Kids and Money survey from mutual fund company T. Rowe Price, children ages eight to 14 gave their parents a B-plus as financial role models. That’s a way higher grade than Mom and Dad deserve. Only half of parents regularly set aside money to save; only 43% set financial goals; and only 24% take specific steps to diversify their investments, according to the study. That’s hardly role model material.

Most parents (77%) say they are not always honest with their kids about money; 15% lie weekly. Half are willing to discuss saving and spending issues but almost no one talks about tougher concepts like inflation (19%), investing (16%), diversification (11%), and asset allocation (8%). A third avoid talking about the family’s finances altogether.

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A lot of parents are in downright despair: 59% believe it is more likely that life exists on other planets than that Social Security will be around in its current form when their kids retire or that their children will become millionaires. All the more reason to open the money discussion with them. Stuart Ritter, a T. Rowe Price senior financial planner who specializes in kids and money issues, offers five strategies:

  • Take advantage of teachable moments Trips to the grocery store, attending a sporting event, getting money from the ATM, and planning family vacations are just a few examples of opportunities to discuss financial choices and lessons.
  • Set an example Demonstrate good financial habits through your own behavior. Try to avoid impulse spending and pay your credit cards in full each month.
  • Set specific savings goals Help your kids set short- and long-term goals that provide an incentive to save. This will also help them make smarter spending decisions.
  • Don’t be afraid to talk about money You don’t have to reveal everything about your finances. But talking openly will make it more likely that your kids will learn—and help you and your kids get over the money-talk taboo.
  • Learn with your child Parents may find concepts like inflation, diversification, and asset allocation difficult to grasp. Why not explore them in ways that can be easily shared? For example, in talking about a diversified portfolio you might equate it to a diversified wardrobe. In both cases, you want enough sizes and styles to be ready for anything.