Parents Pass (Bad) Money Habits to Kids

When people are asked why they are stressed, money – or the lack of it – is often at the top of the list.

Ask psychologists why this is so, and many would point to a deeper explanation: our parents.

How and whether our parents talked about money, as well as the emotional tenor of these conversations – or silences – are critical to how we manage money as adults.

Sonya Britt, a certified financial planner and associate professor at Kansas State University, explained how these family dynamics play out in a research summary written for financial planners, under a contract with the federal Consumer Financial Protection Bureau.

Britt describes a two-way street between parent and child.  Parents signal their attitudes about money, either through purposeful and explicit messages or in unconscious ways.  Meanwhile, children learn the behaviors that take them into adulthood by observing what parents do.  These observations can override financial knowledge in shaping behavior.

For example, college students who remember that their parents had healthy credit card practices, such as living within their means, are more successful at keeping their college debt under control.  Generally, parents are advised to talk about financial matters with their children – it’s known as parental financial socialization.  Avoiding such conversations has a negative effect that can “wreak havoc on children as they age.” In extreme cases, silence can lead some to hoard money as adults and others to be careless spenders.

Financial dependence in post-adolescence is an emerging issue as young adults extend the amount of time they live in their parents’ homes, often to cope with college debts and inadequate employment options.  Young adults whose parents provide financial help tend to develop dependency. In contrast, the offspring of people with fewer financial resources – who can’t help their children – learn more quickly to become financially independent.

Bradley Klontz and Britt identified eight debilitating financial behaviors in a 2012 paper, some of which involve parents.  Financial enabling occurs, for example, when parents continuously “rescue” adult children who can’t meet their own financial needs.

More than one in three adults avoids dealing with their money issues, rather than resolving them – another condition identified by Klontz.  Researchers tie this to self-esteem, which parents play a role in developing.   Parents are also sometimes guilty of “financial enmeshment,” which occurs when they cross age-appropriate boundaries and share too much financial information, causing anxiety in their children.

Britt concludes that “understanding these influences is important” for financial educators and advisers.  It’s important for everyone else, too.

To stay current on our Squared Away blog, we invite you to join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.