[us, gb]
Talking To Kids About Money Matters
  • A blog written with parents in mind

Letting Kids Learn the Hard Way 

The 2015 Parents, Kids & Money Survey had some surprising results about parents' take on teaching kids about money. While, overall, 82% of parents feel they are doing a good job teaching their kids about money, parents also favor letting their kids learn some lessons the hard way–by making mistakes.

The survey also found that 69% of parents discuss their own past financial mistakes as a way to teach their kids about money, and 58% of parents let their kids make bad financial decisions so that they can learn from their mistakes. It can be valuable to let kids make their own mistakes so the lesson is more effective. At the same time, it's important for parents to have conversations with their kids about these mistakes and use them as teachable moments.

One way parents can let their kids learn the hard way–without making the lesson too tough–is by helping kids set financial goals. Parents can help their kids set specific goals to save for a big-ticket item that they really want. Then when you're at the store or running errands and your child asks to buy candy or a small toy with their own money, remind them of the larger goal and that buying the candy or toy will take them longer until they can buy the item they really want.

Ultimately, let them make their own decision about how to spend the money. If they choose to spend on the impulse purchase, remind them of that purchase if it takes longer for them to reach their goal. This is a great way to teach your kids through their own mistakes. The kids will learn the lesson, and there has been no real damage to their financial future.

Another way that parents let their kids learn the hard way is when it comes to debt and responsibility. Fifty-two percent of parents think kids should have their own credit card to learn about managing money. It's important for parents to equip their kids with the financial knowledge necessary before handing them a responsibility as large as a credit card.

If you decide to allow your child to have a credit card, make sure they have a good understanding of how credit cards work. They need to know the process for buying items and that, while things might feel free at the time, the bill will still arrive. A good rule of thumb for credit card purchases is that you should never buy something with a credit card that you wouldn't already be able to pay for with cash.

Allow your child to watch you for a few months before signing them up for their own card. Take them shopping, make purchases, and then review the monthly statement to ensure that all purchases match. As you pay the bill, make sure they see that it comes directly from your bank account and that if you don't pay the full amount, they charge interest at very high rates–some near 20%. For older kids, you can even calculate out the interest that would be charged if you only make the minimum payment rather than the balance.

Overall, allowing children to branch out on their own and make some mistakes can be a great learning opportunity for them, but it's important that you manage the risk they'll assume. If children become burdened with debt too young, they may never reach a point where they are financially confident or independent. Using teachable moments opens a dialogue and will help your kids to learn before they make irreversible money mistakes.

Not available for persons residing outside of the United States or the United Kingdom.