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Are you spoiling your kids?

Kids require three things: love, lots of work and money.

There's nothing wrong with indulging your children every once and a while. Yet constantly overspending on gifts, birthday parties, sports or vacations is a common mistake most parents make even if it comes at the expense of their own savings and retirement.

In its latest family spending survey, T. Rowe Price found 46 percent of parents said they'd gone into debt buying something their kids wanted.

Spoiling the kids is an issue that comes up often in meetings with clients, said David Bahnsen, a certified financial planner with The Bahnsen Group in Newport Beach, California.

"The most common example is parents underfunding their own retirement for their kids' college, which then has an impact on their own long-term stability."

Going into debt to throw a lavish wedding, neglecting to sell your small business to keep the children employed or over-accommodating to the point where adult children are not working are other frequent examples, said Bahnsen.

Time to have 'the talk'

If you're in this mode, it's time to start saying "no" more often to their requests but also have a frank conversation with them.

"As a parent, your goal is to set them up for success as adults, and part of that is successfully managing your income and expenses," said Pat Seaman with the National Endowment for Financial Education.

For many, the money talk is as dreaded as that other talk and can be equally unnerving especially if there are financial issues such as debt that you'll need to explain.

"Every family goes through it and every family is afraid to bring it up," Bahnsen said. "They feel it implies that they've done something wrong, when in reality they're trying to button things up."

Keep it age appropriate

Like with other behaviors, the sooner you begin to instill positive financial values the better, which is why Seaman suggests teaching your kids about money as early as age 2.

"As they start to argue and fight back it's even harder and less pleasant to bring up lessons like [money] is a finite resource and kids can't have as much as they want," Seaman said.

With young children, she suggests playing store to introduce the idea that money is a medium of exchange and has value, or using an allowance to emphasize the importance of saving and earning items they want.

With older children and teenagers, you can advance the concepts by talking to them about compound interest by having them open a Roth IRA to begin saving money if they have income from a job. This is also a good time to open their first bank account and teach them how to check their account online.

There are several online resources for parents, including on the NEFE website, which offer tips for parents on how to have the money talk at every age.

Lead by example

Feel like you've made too many financial mistakes of your own to impart words of wisdom to your children? Don't let that be an excuse.

"You are their strongest role model in the terms of money management," Seaman said.

Parents, more than financial education courses or part-time jobs, are by far the biggest influence of positive money behaviors in their child's life, she said.

So, have ongoing conversations about the family finances, take the time to change your own negative money behaviors and let them know you expect them to not repeat any mistakes.

Personal Finance

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