Personal Finance

Steps to stop you passing bad money habits on to your kids

Kids and money
Kids and money

Your children may suffer for your financial sins, but they don't have to.

People who have declared bankruptcy were more likely to have kids who do not save any money that they get, and spend cash as soon as they receive it and expect their parents to buy them what they want, according to a new survey from T. Rowe Price. That compared less favorably to the children of people who didn't declare bankruptcy.

Fortunately, even if you have made financial mistakes in the past, you can set your children on a better path by taking these steps:

Regularly talk to your kids about money

The survey, which polled 1,014 parents of 8- to 14-year-olds and their children, found that people who discuss financial topics with their kids at least once a week were significantly more likely to have children who say they are smart about money. The numbers were 64 percent for the weekly money-talking parents compared to 41 percent for those who didn't discuss their finances with their kids.

"These conversations don't have to be earth-shattering," said Roger Young, a certified financial planner at T. Rowe Price and the father of three teenagers. "It can be as easy as talking about how you calculated a tip or what you saved when shopping at a sale or explaining why you didn't go on a bigger vacation this year."

Let your children manage their own money

Kids who have some control over their finances are less likely to spend their money as soon as they get it, expect their parents to buy them what they want, and feel ashamed that they have less than other children, according to the survey.

"Whether you give your kids an allowance or not, they have to some money to practice with," Young said.

Parents should begin conversations about finances with their children as soon as possible, said Lynnette Khalfani-Cox, a financial advisor, a mother of three and author of the "The Millionaire Kids Club" book series.

"It's never too early to start," Khalfani-Cox said. "When they ask about the coins and bills in your wallet as a toddler, it's time to talk about money with them."

Keep it simple

Kids need to know that there are four basic things you can do with money — save it, spend it, invest it and donate it — and you should discuss all those aspects of finance, said Khalfani-Cox. She uses a piggy bank with four chambers, one for each action, to help her children think about their financial priorities.

"Young kids only see us spending money at the store, so if you don't talk to them, they think money is just to buy stuff," Khalfani-Cox said.

More schools are teaching children about personal finance, but your kids' money education should begin at home, said Jennifer Myers, a financial planner and mother of one. She is president of SageVest Wealth Management in McLean, Virginia.

"The reality is that you can't teach financial education in a classroom," said Myers, who recently launched to educate parents about how to talk to their kids about finances and activities they can do with their children. "It's learned at home and by experience.

"Parents should look in the mirror," she added. "What is the lifestyle that we lead? What impression is that lifestyle giving my child?"

You don't have to go it alone. Plenty of books and websites, including T. Rowe Price's, can help you develop a curriculum that is right for your children.

Money lessons for children at every age level

Myers has developed some money milestones parents and kids should strive for throughout their childhood.

What parents should do:

Ages 3 to 4

  • Explain that money is earned by working and that it's used to buy things.
  • Put the credit card away and use real money as much as possible when shopping with kids.
  • Teach the difference between nickels, dimes, quarters and bills.

What kids should do:

Ages 5 to 7

  • Practice counting and exchanging money when you go to the store and at home during play.

Ages 8 to 10

  • Perform small jobs to learn the value of earning money.
  • Assume greater financial responsibility with a larger allowance.
  • Save for longer-term goals.
  • Open a bank account.

Ages 11 to 13

  • Develop budgeting skills.
  • Start planning for longer-term spending and saving goals.
  • Learn the importance of giving to others.

Ages 14 to 16

  • Manage greater financial decisions, such as annual clothing purchases.
  • Learn to plan, save and budget from personal earnings and allowance.
  • Engage in discussions about college, including financial expectations and saving requirements.

Ages 17 to 18

  • Manage more personal expenses to gain valuable financial experience, greater personal responsibility and the individual freedom teens seek.
  • Work and volunteer part-time to build self-esteem, confidence and experience, ideally in areas that align with their career paths.

"On the Money" airs on CNBC Saturdays at 5:30 a.m. ET, or check listings for air times in local markets.