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Studies: Kids Inherit Financial Habits from Parents

Studies: Kids inherit financial habits from parents

A recent T. Rowe Price survey revealed that “adulting” is harder for young adults who did not receive any financial education. In fact, 64% of young adults were surprised at how little they knew about managing money once they had to start dealing with real-world finances. Those who didn’t receive any financial education are less likely to have a budget, an emergency fund, and retirement savings.

According to some experts, financial illiteracy, overall, is a growing epidemic. Surprised? Let’s look at some data.

Factor #1: Lack of formal financial education

Money-management skills are more important than ever, yet most states still do not require high schools to offer personal finance classes. If formal classes are offered, most don’t begin classes until high school or college.

  • 41% of surveyed young adults aged 18 to 24, said they had no financial education course when they were younger, and 88% had one.
  • An assessment by the US Department of Education measured students around the world in mathematics, science, and financial literacy, and almost 22% of 15-year-olds in U.S. scored below a passing grade.

These personal finance statistics show how much today’s youth are lacking in education about practical financial subjects.

Factor #2: Habits are learned at home

It turns out the apple doesn’t fall far from the money tree, so to speak. In lieu of high school personal finance classes, most teens either learn from their mistakes or look to parents for personal finance lessons. As many as 54% of young adults say parents had an influence on their financial habits and behaviors.

Another survey by T. Rowe Price found that positive money behaviors and expectations among kids are often associated with parents' decision to let their kids decide how to save and spend their money on their own, as well as modeling good financial habits.

  • Kids who manage their own money have better money habits
  • 76% of kids who manage their own money discuss money more and are more likely to say they talk to their parents about money

These parents are more likely to have kids who have money saved (98% vs. 86%) are also less likely to:

  • Spend their money as soon as they get it (40% vs. 52%)
  • Have lied to their parents about what they spent their money on (34% vs. 43%)
  • Expect their parents to buy them what they want (52% vs. 65%)
  • Feel ashamed because they have less than other kids (30% vs. 50%)

Conversely, troubling financial habits among kids were more frequently seen when parents have a troubling history with money.

Factor #3: Parental reluctance

Although parents carry a lot of influence on how their kids handle and look at money, many still have some reluctance to discuss financial matters.

  • 74% of parents admit to having some reluctance to talk with their kids about financial topics, most often because parents don’t want their kids to worry about finances.
  • And 61% of parents only discuss money with their kids when their kids ask about it.
  • I’m not good with money, so I shouldn’t be the one to teach my kids about money” is another statement that many parents agree with. (28%)

The takeaway

Whether you’re good with money or not so much, kids are always watching and drawing their own conclusions from what they learn from you. Even parents who harbor an extra cautious or fearful approach toward money may also pass down unhealthy money habits, say experts. But spending some time understanding your financial psychology can be incredibly valuable in helping improve your financial health and can also help you be a better parent.

So how can you turn it around?

Start talking

The same study from T. Rowe Price says that parents who discuss financial topics with their kids at least once a week are significantly more likely to have kids who say they are smart about money (64% vs. 41%).

Frequent topics parents have used to initiate money conversations have included:

  • Back to school shopping on a budget (47%)
  • Figuring out how much was saved by purchasing sale items (45%)
  • Going into a physical bank (41%) Discussing the cost of college (41%)
  • Discussing why they didn't take a bigger vacation (34%)

Even parents who handle money responsibly can inadvertently send their children the wrong message if they avoid talking about it. If you’re not talking about money, you’re giving your kids a message about your money. What’s more, talking with your kids about money can shape their experiences and give them the opportunity to learn from your successes and mistakes

Psychologists have identified four financial patterns that research has shown to powerfully influence people’s actions:

  • Money avoidance, which is associated with a fear of or discomfort with money;
  • Money worship, which often causes people to overvalue money;
  • Money status, which can lead people to measure their self-worth with money and
  • Money vigilance, which is associated with saving money.

Start young

Financial education has to start at home — and long before kids enter high school. Indeed, studies show that children make their first assisted purchases at age 3 (choosing the cereal in grocery stores is the most common initial purchase), and allowances that provide opportunities for discretionary spending often start at age 6. So parents need to be the ones to begin providing the financial education kids need in order to be money-savvy adults.

What ways have you started teaching your children about money? Opening a savings account of their own can help start teaching them early on the essentials of saving. If you haven’t done so already, open one today or learn more about United Federal Credit Union’s Youth Savings Accounts!