The Big Money Mistakes We Make With Our Kids

By Neale S. Godfrey For New York Life

As parents, we all want our sons and daughters to grow up to be well–adjusted, responsible adults who look back on their childhoods — and on us, as their moms and dads — with fondness. None of us want our kids to be teased at school for their generic–brand sneakers or to have to worry about our increasing credit card debt or how we're going to make the monthly mortgage payment. But sometimes, in our quest to give our kids happy childhoods, we send the wrong messages about money — messages that can confuse our kids and harm the family's financial health.

Here are some of the most common mistakes parents make, and how you can avoid them.

Big Mistake #1: Believing That Your Kids Must Have What Other Kids Have.

This is a pretty easy temptation to fall into. It probably goes back to our own childhoods. If we grew up having less than other kids, or feeling that we did, then we don't want it to happen to our children. That's a large part of why we worked so hard to succeed.

But the answer to it is easy, too. Is this a value we want our children to have? Do we want them to have that sense of entitlement — "I should have what he has" "I gotta keep up with the Joneses?" Of course we don't. I'm not saying that your kids can't have anything; I'm talking about balance.

The main problem with the syndrome of "keeping up the Joneses" there's no cutoff point. Once you're in that mind set, nothing is ever enough.

It's not attractive. It's not what we want for ourselves, and it's certainly not what we want for our kids.

The solution: Stop and think. Why am I considering buying this for my kids? Will it help them do better in school? Will it add to their cultural enrichment? Will it help them develop skills that they need? Or will it jack up their snob–appeal quotient? There's nothing wrong with having nice things. But when kids get things without realizing the amount of money they cost — and, therefore, the number of hours worked to earn them — there is a value disconnect that can start a cycle of wanting and getting more and more without ever really being satisfied.

Big Mistake #2: Shielding Your Kids from the Cost of Things.

One of the things that get parents into so much trouble is the idea that you have to shield your kids from the harsh realities of money. So many parents tell me, "We don't want to take their childhood away."

I've heard of similar problems from people who grew up in households that were relatively comfortable. "You just didn't talk about money. You didn't ask how much things cost. Polite people simply don't discuss it."

Anything that involves money, and exchange of value, can be used as a learning tool. For instance, if your kids are looking at the check at a restaurant, you can explain what the tax is and how it's calculated. You can also explain how to figure a tip and why you leave one. Explain the economics of being a waiter or waitress, and how much a part of their necessary income is derived from tips.

If you haven't explained yet about tipping to your teenagers, you need to. Shielding your children from the cost of things can keep them from getting a good start on their own.

Big Mistake #3: Using Credit Cards to Buy Stuff for Your Kids When You Know You Shouldn't.

The biggest financial danger to older teenagers — college students especially — is the credit card. The teenagers to whom the credit card is the most serious danger are the ones who suffer from a value disconnect. They don't connect things with the money it costs to buy them; they don't connect money with the work hours it takes to earn it. When you spend money that you don't really have in order to buy one thing that your teenager wants — or even something that your teenager needs — you may be thinking, like Scarlett O'Hara, "I'll think about that tomorrow." When Scarlett did that she was usually counting on herself to work, scheme, and improvise to come up with some way to get herself out of the jam she'd gotten herself into. It frequently (though not always) worked for her, but that's Hollywood. In real life, the message you're sending to your teenager is that you can buy things without worrying about paying for them, and this is just about the worst message you can send.

Big Mistake #4: Spending Money on Your Kids and Not Letting Your Spouse Know.

Most of us, for one reason or another, grow up being secretive about money, and that's part of the story here. The other part relates to value disconnect. If you can hide it from someone, it didn't really happen.

You know you don't want your kids to learn lessons of deception. And you don't want to put them in a position of conspiring with one parent against the other. But it can happen.

Big Mistake #5: Spending Money on Your Kids and Not Letting Yourself Know.

According to a recent study done by Ohio State University for the U.S. Department of Labor, the average teenager gets $50 a week in disposable income from parents, above and beyond any money the teen gets as allowance. This is just the money that parents hand out in dribs and drabs without realizing it: five bucks here, three bucks there. And it can be a lot more than that, too. Kids from affluent families — those with incomes of $100,000 or more — frequently get as much as $175 a week in unaccounted—for "pocket change."

That's not a shabby salary for doing nothing. It comes out to a potential $9,000 a year.

The way to find out if you're doing this — and very many American parents do it much more than they think they do — is by keeping a No–Magic–Money Log for a few weeks to find out just how much money you actually do give your kids.

In order to make the count accurate, you have to be sure that you actually control every transaction that involves money leaving parents' hands and going into kids' hands. Make sure your partner is keeping their own No–Magic–Money Log too. Also, make sure that your kids aren't helping themselves. And especially watch out for this: If you customarily leave your purse or wallet on the kitchen table, and your kids see it as an unspoken invitation to grab a couple of bills when they want to buy something but don't have the cash on hand, then make sure that custom gets changed.

It's important to know how much money is actually passing through your hands and into your kids' hands, but it's also worthwhile to know the dynamics of these transactions. Do you ask your teen what they need the extra 10 bucks for, or do you just fork it over? If you do ask, are there sob stories that are more or less likely to work on you? This can happen. The sports–loving dad may be more likely to fork over the asked–for cash if it's to buy sports equipment or to see a game.

A No–Magic–Money Log is a way of getting to know yourself better. When you write down the donation to your teen's slush fund, note what it's earmarked for. If it's "Oh, just stuff," write that down. At least you'll know how much you're willing to give up for "just stuff."

But ultimately, "just stuff" is never a satisfactory accounting for how money is spent. Your goal in any No–Magic–Money Log is to reduce the amount of "just stuff" money to nothing and to account for everything.

When you go over a few weeks' worth of your log, you may find other patterns. Are you most likely to give a little extra to your teen on payday or just before supper or on a Sunday morning?

You didn't realize that? You can bet your teen knows it.

Keeping A No–Magic–Money Log

It's easy. A No–Magic–Money Log is based on the simple theory that every penny of your money gets spent for something, and if you keep a record of everything you spend, you'll know exactly where all of it went.

So get yourself a little spiral memo pad, a stack of index cards, or a Palm organizer, and every day write down everything you spend, no matter how inconsequential. This includes money that you give to your kids. Write down the date, what you bought, and what you spent. No "other" or "miscellaneous" category.

Within a short time, you'll have a record that will tell you exactly where all your money goes. This has usefulness far beyond finding out how much you're actually giving your kids. It is step one in any money–management plan.

Neale S. Godfrey is a former bank president and an acknowledged expert on family finance. Her 14 books include a #1 New York Times Best Seller, Money Doesn't Grow On Trees and her latest book, Money Still Doesn't Grow On Trees: A Parent's Guide To Raising Financially Responsible Teens and Young Adults. She has authored an educational program called The One and Only Common Sense/Cents Series which corporations are donating into their local community schools and after–school programs. Neale has appeared on TV on The Oprah Winfrey Show, Good Morning America, The Today Show, CNBC, NBC, CNNfn. She frequently delivers lectures on "How to Raise Financially Responsible Children." For more corporate marketing programs, products, and books go to Neale's Web site www.childrensfinancialnetwork.com or call 908–879–8898.

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