Parents Don’t Always Know Best About Finances
Here are 7 bad financial habits you could be passing on to your kids.


Parents try to teach us the best way they know how. Unfortunately, they do not always know best, and sometimes they can inadvertently teach their children bad habits without even realizing it. Simply by observing what their parents do, children can pick up bad habits, including financial ones, that can last a lifetime.
A 2017 survey from T. Rowe Price illustrated how this could happen. The survey analyzed parents’ attitudes and behaviors associated with kids’ financial habits, and it found that parents with troubled financial histories tended to have kids with their own troubling financial habits.
Children can absorb an amazing amount from parents without anyone even realizing it, so it’s important to set a good example. Certainly, the adage “The apple does not fall far from the tree” has some merit when it comes to finances.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The study showed that parents aren’t always the best role models for their children when it comes to money. For example, among the findings was that parents who have $5,000 or more in credit card debt are more likely than those who don’t have such debt to have kids who spend money as soon as they get it. The challenge is to determine which parental habits children should emulate and which ones they need to avoid.
It isn’t easy, especially when you grew up in a household with parents who did not learn good financial behavior. Keeping all this in mind, parents might want to avoid the following:
1. Spending too much. If your spending is greater than your income, you may end up in debt, bankruptcy or foreclosure. Living within your means is easier said than done, of course; there’s always some new purchase beckoning you to give in to temptation. The problem with instant gratification is that the gratification you receive from buying on impulse is transitory while the specter of paying lingers. It is possible to train yourself to save and not give in to the temptation to buy items that you have to pay for later. Once you have remained disciplined and you see your bank balance grow, the long-term satisfaction will prevail over instant gratification.
2. Not automating. If you have resolved to get your financial house in order, building up your willpower takes time. That’s why it makes sense to delegate to technology as many financial tasks as possible. For instance, if you set up automatic deposits into your 401(k) or other investment accounts, you don’t have to rely on memory or willpower to get the job done.
3. Paying just the minimum. In the good old days, if you didn’t have the money to buy something, you didn’t buy it. In our age of plastic money, however, you’re encouraged to spend more than you can afford and worry about paying later. If you get on this treadmill, you can quickly find yourself paying only the minimum on those cards, a very precarious position to be in. Not only are you paying more for each item thanks to interest charges, but you are also setting yourself up for disaster. All of this should encourage you to get rid of high-interest debts.
4. Not planning for retirement. Racking up credit card debt is one side of the carefree, live-for-today coin. The other side is not planning for the future. What happens when you can no longer work because of age, health or downsizing? According to the 2017 Retirement Confidence Survey (RCS) by the Employee Benefit Research Institute, many workers lack confidence they will be able to retire and are now stressed about retirement preparations. If you haven’t begun your retirement planning, do it now. There is no time like the present.
5. Lifestyle creep. You may have seen this problem when you were growing up. Your father got a raise and immediately ran out to buy a new car. Lifestyle creep, according to Investopedia, is “a situation where people’s lifestyle or standard of living improves as their discretionary income rises.” Sure, it’s tempting to celebrate that year-end bonus with a fancy cruise to the Bahamas. After all, you earned it, right? Even if that’s the case, you have to be careful. Make sure a portion of any raise or bonus you earn goes into your savings.
6. Paying unnecessary or high fees. This one is an easy fix. Although the dollar amount may seem insignificant, over time, these types of fees can add up. Among the most common fees that you are paying include bank fees (late fees and overdraft charges) and ATM fees. Careful bookkeeping can help you avoid the former, while a simple check of your bank’s fee-free cash machine locations will help you avoid the latter. Don’t pay for something you don’t have to.
7. Being underinsured. Insurance products can play an important role in retirement and financial planning. Insurance can come in many forms: disability, long-term care, life, health and more. Evaluate your insurance needs and make sure any policies you hold are up to date. For example, while disability insurance may become less of a need once you reach retirement, coverage for long-term care may be a new consideration. Different kinds of insurance are important at different stages of life, so regularly reviewing your needs can help keep you on track and fully covered.
By avoiding those habits, besides being in a better position themselves, parents will help ensure their children will be better prepared for managing their finances. At the very least, these are simple steps parents can take to be sure their children have a head start when it comes to managing their money.
Kevin Derby contributed to this article.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Berkshire Hathaway's in the 100,000% Return Club. No Surprise Here
Warren Buffett's fascination with the insurance industry has helped Berkshire Hathaway's stock return snowball.
By Louis Navellier Published
-
4 Turnaround Stocks to Consider – and 2 More to Keep an Eye On
A turnaround stock is a struggling company with a strong makeover plan that can pay off for intrepid investors.
By Nellie S. Huang Published
-
Facing a Layoff? Ask Your Employer These Questions Now
If you're being laid off or forced into early retirement, don't make any decisions without proper guidance — and that starts by asking some key questions.
By Ben Maxwell, ChFC®, AAMS® Published
-
Have $1M+ Saved? Consider a Financial Planning One-Stop Shop
A 'one-stop shop' team — including a financial planner, estate planning lawyer, CPA and more — could serve all of your tax, estate and retirement planning needs.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
Five Ways to Safeguard Your Portfolio in Market Downturns
The stock market is nothing if not volatile these days. When it takes a dip, a well-managed, properly diversified portfolio could help you ride out the storm.
By Joel V. Russo, LUTCF Published
-
This Underused IRA Option Offers Tax Benefits and Income Security
Looking to avoid running out of money in retirement? Consider longevity protection provided by a QLAC as a component of your retirement income plan.
By Jerry Golden, Investment Adviser Representative Published
-
These Four Books Explore How to Leverage Our Outrage Positively
The authors offer some powerful tools to help us find solutions to discord rather than remaining silent or blowing up in anger.
By H. Dennis Beaver, Esq. Published
-
Financial Pitfalls to Avoid in Your 30s, 40s and 50s
As you pass through each decade of working life and build wealth for retirement, watch out for the financial traps that can hinder your progress.
By Julia Pham, CFP®, AIF®, CDFA® Published
-
Five Key Retirement Challenges (and How to Face Them Head On)
Life will inevitably throw challenges at you as you get older. But making a flexible retirement plan — and monitoring it regularly — can help you overcome them.
By Walt West Published
-
Four Action Items for Federal Employees With $2M+ Saved
If you can't stand the chaos, maybe you can walk off into the sunset of retirement. Here are some thoughts on how to figure out if that would work for you.
By Evan T. Beach, CFP®, AWMA® Published