Personal Finance

Finances and kids – leading by example

“Setting an example is not the main means of influencing people, it is the only means.” – Albert Einstein

We live in a society that places a great deal of value on material things. Whether it’s the home we live in, the car we drive or the clothes we wear, other people’s perceptions of our social standing and level of success are often gauged by our purchasing power. Looking back through history it seems that this has always been the way but what has shifted in our society over the past 25 years or so is that our ability to purchase now depends more on our ability to access credit and less on our ability to accumulate wealth. For young people, this can make it very challenging for them to manage their money and very easy to accumulate debt unless they’ve developed strong financial habits.

As children, we learn primarily through example and our two main sources of learning are our schools and our parents. Financial literacy is virtually non-existent in our schools and so that places the responsibility for financial education squarely on the shoulders of parents. The trouble is that you can only teach what you know and understand, and for many parents, the lessons that their children learn by example are not necessarily what they would have chosen to teach.

Related article: Teaching kids about money

Over the past year, I’ve been working on a book on finances for teens and developing seminar outlines that I’m just starting to test out. What I’ve realized through researching and writing is that any information that’s given to teens also needs to be applied by their parents; change is a team effort. Children look to their parents for example, they trust their opinions and their beliefs and often they will adopt many of those beliefs and habits as their own. This is a good thing; psychologically, young children need their parents to be infallible in order to feel secure and stable. It’s only as teenagers that kids become mature enough to start questioning what they’ve been taught and to form opinions and make decisions of their own (any parent of a teenager will tell you that this a particularly joyful part of their child-rearing journey!). Even though they’re starting to develop their own separate identity, many of a teenager’s core beliefs about money, relationships, and society are still very much those of their parents. The trouble is that when children are presented with concepts and ideas about money and money management which conflict with the messages they’re receiving at home, adopting those new ideas means going against what their parents believe. Regardless of how the concepts are presented or how much sense they make, kids are unlikely to apply them unless they mesh with what is being reinforced in the home.

Recently, Gail Vaz Oxlade wrote a post on her blog about the importance of ‘raising savers’ and she commented: “If you want your kids to be good about managing their money you not only have to give them some (an allowance) and set some expectations (save), you have to demonstrate money management behaviors they can emulate.” It’s important that, as parents, we understand that we can’t teach without doing but that we don’t need to be perfect; sometimes our mistakes can be the most powerful lessons. At the end of the day, effective money management isn’t rocket science, it’s rocket science and it’s a science that is grounded in a few remarkably simple rules. However, as Jim commented in a post last week “just because it’s simple, doesn’t mean it’s easy” – we live in a society where we are tempted on a daily basis to live beyond our means and focus our energy on accumulating ‘stuff” rather than building wealth. This message is one that our children absorb before they can even speak through the power of commercials and advertising and it’s one that needs to be countered rather than reinforced by what they see at home.

For the next few weeks over at MapleMoney, I’m going to explore different ways that parents can teach their children about finances and help them develop strong financial habits that will set them up for financial success. Leading by example is at the heart of this; you can “talk the talk” but if you’re not also “walking the walk” your words lose their power. It’s action rather than a theory that inspires results.

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