Talking about money is still considered taboo in many families. Many middle-class Americans refrain from openly discussing money with their children, let alone teaching them about finances.
This is one of the main reasons why poor and middle-class children often grow up quite similar to their parents financially.
They lack a basic understanding of money, the economy, and how the value system works. This lack of understanding causes most people to struggle with money during the course of their life.
One of the biggest reasons why people find it uneasy to discuss topics like money within their families is because they don’t know how to. They don’t know how to describe money to their 5-year-old or how to stop their spouse from using that credit card.
In this blog, we’ll learn from the author of Money Minded Families, Stephanie Mackara, the art of talking money with your family and why it is so important for your children to learn about finances early in their lives.
So if you’re a parent struggling and wondering how to talk money with your spouse or children, then this one is especially for you.
How to Talk About Money With Your Children
So, how can parents really get their kids into a healthy money mindset and develop good financial habits for life?
For that, we must first learn the concept called financial socialization. Essentially, financial socialization is the way all of us learn our money habits, positive or negative. Most parents are not mindful of them, so they pass on potentially negative habits to their children.
Through positive financial socialization, you can teach your kids all the good money habits at a very young age that will stay with them for life.
As a parent, you need to mimic all the good habits like not giving in to instant gratification, researching your purchases, and all that you want your children to learn.
If you can do that, your children will grow up with a very strong foundation and make really sound financial choices as they get older.
Now, a lot of people themselves grew up without much financial education. So they don’t even have the aptitude to be able to share and teach their children.
In that case, the first thing you should do as a parent is to be conscious. Be conscious of what you’re doing and what choices and decisions you’re making financially. Basically, learn about what your money personality is.
There’s a really good quiz on financial times as well as some other websites that can help you find your money personality.
Once you’re aware of your personality and the issues attached to it, you can be conscious of them and make sure that you don’t pass them on to your children.
Myths Around Money to Not Pass On to Your Children
Not passing bad habits on to your kids is as important as passing good habits. That’s why it is important to watch out for some prevalent myths around money that parents often pass on to their children.
A lot of people only focus on investing and stock trading and think of it as financial advice. It’s not. Investing in the financial markets is the implementation of the plan, not the actual financial plan.
Financial planning is not about investing or stock trading. In fact, It’s not even about the money. It’s the way that you manage your life and use money as a tool to get you where you need to go.
Having goals and dreams and planning to reach there while being prepared for any obstacle that might come your way is the essence of financial planning.
Financial Pitfalls to Avoid as a Family
Financial freedom is the result of the collective effort of the whole family. It is important, therefore, to avoid the common pitfalls that hurt your financial situation the most.
1. Don’t Spend More Than You Earn
This is the biggest and most common mistake that people make, and that is using credit cards to fund your purchases.
Most people are not aware or don’t connect with the fact that they are paying 20% interest on their credit cards. Not only that, but they’re also accumulating debt on themselves.
The solution to this is simply don’t spend the money you haven’t earned yet. That means stop using credit cards and switch to either debit cards or cash until you develop the habit of not using credit cards for non-essential things.
Also Read: 5 Money Habits That Keep You Poor
2. Good Debt and Bad Debt
Now before you stop using debt altogether, you must understand the concept of good debt and bad debt and how debt can be good.
When you can use debt to grow your wealth and grow your assets in a way that generates you more income, that is considered good debt. For example, if you’re taking a loan to start a business that you’re confident in, then that’s good debt.
But if you’re taking a loan to simply fund your purchases or using credit cards to do shopping, then that’s really bad debt.
Consider debt as another tool to help you grow your wealth and help you meet your goals. It’s not intended to purchase items to keep up with the Joneses.
How to Talk Money With Your Spouse
One of the biggest problems that couples deal with is conflict of thoughts and ideas when it comes to money. For example, one wants to save and invest for the future while the other wanna enjoy the money by spending it.
The first thing couples should do is find out and get aware of their money personality by taking the money personality test discussed earlier in the blog.
When you and your spouse are aware of each other’s qualities and shortcomings, you can keep them and yourself in check and develop a plan that suits you both.
So for example, if one of you is an avid spender and another one is sort of an investor, you can try to strike a balance between the money you spend and invest.
Why Financial Literacy is Important
From a government and a corporate standpoint, we’re in so much debt that we’re not sure how social security and pensions gonna look like in the future.
So our children, when they’ll retire, will only have whatever they’ve saved and invested. That’s why it’s no longer a luxury to teach your kids about money but a necessity.
There’s no “too young” age to talk to your kids about money. Financial socialization starts the way we socialize our children with others. Financial socialization is just an extension of it.
For example, having your child calculate the tip on checks at a restaurant. It helps them understand the value of the dollar, teaches them to give back to our service providers, and there’s also basic math involved.
Teaching your kids to differentiate between needs and wants is also one of the most important things. Once they get into a habit of doing that, they’ll do it as an adult as well.
Money Minded Families Book
If you’d like to have some in-depth knowledge on topics like how to talk about money with your family, then Stephanie Mackara’s book Money Minded Families is a must-read.
Stephanie is a financial advisor herself and helps people and families with their money. The book contains lessons that Stephanie has learned throughout her career talking and consulting hundreds of successful people.
The goal of the book is to help people check themselves financially and start thinking about money differently. It contains stories that are easy to read but provides you with insights into how successful people manage their money and build wealth.
The book is available on Amazon and her own website: moneymindedfamilies.org. You can check it out.