Teaching kids good money habits by example

You may think they're not watching, but they are

By Heather Larson

You can tell your children whatever you want about money, but what they see you doing with it will make a lasting impression. When it comes to money, kids begin watching their parents for cues at a very young age.

Teaching by "example gives a much more vivid picture, and kids will do what mom and dad do," says Lisa Ray, financial education specialist for Consumer Credit Counseling Services in Atlanta.

If parents don't demonstrate wise use of credit early on, when their children become teens they can easily get into credit trouble. Greg Meyer, a parent in San Jose, Calif., recalls his daughter saying, "Take out your card, Dad," when he said they couldn't afford an item she wanted.  Unless shown otherwise, kids think credit cards give you "free" money because they don't see the bills, interest, fees or the checks written to pay the bills.

According to the 2010 Teens and Personal Financial Survey, conducted jointly by Junior Achievement and the Allstate Foundation, only 54 percent of the teens surveyed thought they could use credit responsibly. Twenty percent didn't use a budget because their parents didn't use one.

Remain an open book
When we don't talk about money or credit and keep how we handle finances a secret, we give our kids the message that it's not important, says Brad Klontz, co-author of "Mind Over Money, Overcoming the Money Disorders that Threaten Our Financial Health" with Ted Klontz.

"One of the worst things you can do is enlist your children in secret-keeping. This is common and gives a powerful message to kids," says Ted.

The best thing you can do is to exhibit and share practical money behaviors. For example, if you use a list when you go grocery shopping, talk about that with your child and if he's old enough, let him find a few things on your list while in the store or even plan a meal on a budget and shop for the ingredients. Children taught that way will be able to plan better when they are older, says Ray.

When you comparison shop and look for bargains and explain what you're doing, your child will remember that when she's on her own. Meyer says he always did tons of research to find the best possible product and his daughter picked up on that. Now she's a very careful shopper and gets outstanding bargains, says Meyer.

On the flip side, if you're trying to dig out of credit card debt, don't hide that from your kids, either. But don't scare them with comments like, "We might lose our house," says Ted Klontz, who is also president of Your Mental Wealth in Nashville, Tenn.

"Create a plan to get out of debt before presenting it to your child," says financial education specialist Ray. "Tell them that you don't want this to happen to them when they get older, and it may take help from the whole family to follow the plan."

Ray says the new credit card payoff disclosures on card statements are a great tool to share with your kids. A large block printed on the statement must now reveal how long it will take to pay off your credit balance if you pay the minimum payment each month and how long it will take if you pay more than the minimum.

"After they see this information, you can tell them that unless we make changes in our life, it will take a long time to pay off this debt," says Ray.

Credit has value
Money needs to be connected to material things in the eyes of a child. Cash money, that is, not plastic money.

"We lose that if we use debit or credit cards all the time," says Brad Klontz.

Put a glass jar in the living room and add money to it over a period of time, and then take it to the store to buy something. Children will get a better visual picture that way, Brad says.

Ray suggests having your children add change to the jar so they feel the excitement seeing the money grow and reaching a goal.

"However you decide to use credit, you should explain why you are choosing to use it in this way," says Ray. "Children will see, learn and grow from what their parents do."

If you gain rewards points with your credit card and that's why you use it, show your children the bill when it comes, the points you've accumulated and what you can do with those points. But definitely have a conversation about how you should use credit cards, Klontz says.

You can compare credit to a knife, says Ted Klontz.

See related: 8 games that clarify credit for kids, 6 tools to help parent teach kids about money, Giving your kids a jump start on their credit

Published: May 7, 2010

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