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3 Things Parents Who Instill Healthy Financial Habits In Their Children Do Right

Of course, there’s no one right way to parent—particularly when it comes to instilling healthy habits in children. Especially anent all things money. But a wealth of research suggests that parents have such a significant impact on their children’s fiscal behavior, with regards to both spending and saving.

“My dad was my greatest inspiration,” renowned investor Warren Buffett said in an interview with CNBC back in 2013. “What I learned at an early age from him was to have the right habits early. Savings was an important lesson he taught me.”

Many notable investors look up to their parents—including everyone from Warren Buffet to Shaquille O’Neal. According to the New York Times, Shaq’s late father, Phillip Harrison, an Army drill sergeant, taught him everything he knows about discipline, which translates to money management, too.

“A lot of athletes, when they’re done playing, they have no income, and they go broke—and I never wanted to be like that,” Shaq told CNBC. “So even when I was making a lot of money playing basketball, I would come home and see my father, and [he’d] be like, ‘Yeah, but what are you doing with your money?’”

T. Rowe Price’s Parents, Kids & Money survey suggests that parents pass down good and bad behaviors when it comes to money management. More specifically, when children are given the autonomy to decide how to spend and save their money on their own—and have parents with healthy habits to whom they can refer—they develop more positive money-management skills. On the contrary, however, parents with money troubles tend to induce disconcerting habits in their children, too.

So here’s what the parents who are getting their children started young with healthy financial habits are doing right.

1. They talk to their children about the taboo topic: money.

Research, published in the Journal of Economic Psychology, purports that parental behaviors, like discussing financial matters with their children, and parental orientations, like future orientation, have a clear impact on children’s fiscal proclivities well into adulthood. And, yet, according to a Finance and Parents survey by the country’s largest community credit union, BECU, most parents are not having these necessary conversations with their kids. The aforementioned T. Rowe Price survey adds that, now more than ever, almost half of parents are reluctant to talk money with their kids.

“Discussing money with kids is particularly important in the midst of the coronavirus pandemic, when many families have been affected—from smaller consequences like a canceled vacation to a parent who has lost a job,” Roger Young, CFP®, a senior financial planner at T. Rowe Price, said in a press release. “While parents may question their ability to teach money topics, they can take comfort that there are resources available to help them. Parents who put on a financial façade could especially benefit from these resources, as we see an increased reluctance among them to discuss money with their kids.”

Parents who do talk about money with their children tend to wait until their teenage years. But research finds that, by age three, 80 percent of our brain growth has already happened. In fact, one study from Cambridge University shows that children can already make sense of basic money concepts between the ages of three and four. By the time they turn seven, these concepts start digging roots, relating to their future financial habits.

Of course, leading by example is key. It’s important for parents to not just talk about positive behaviors but also to embody the behaviors they want their children to emulate.

After all, 71 percent of those who try to keep up with the Joneses admit that their kids tend to spend most of their allowances almost immediately—this compares with just 40 percent of their counterparts who aren’t constantly trying to prove themselves, according to the T. Rowe Price survey.

2. They set expectations for their children early.

Research out of the University of California at Los Angeles finds that parents’ expectations for their kids majorly influences attainment of their goals. 

“Parents who saw college in their child’s future seemed to manage their child toward that goal irrespective of their income and other assets,” professor Neal Halfon said in a statement.

Specifically, only 57 percent of the kids who did the worst on standardized tests had parents who expected them to attend college. On the contrary, 96 percent of the ones who did the best were expected to go to college.

In other words: Parents who set expectations for their children (within reason, of course), can turn into self-fulfilling prophecies. Their kids may grow to meet those expectations. And the same can be said for financial expectations.

But setting expectations for children should be done in an authoritative manner, as opposed to an authoritarian way. This means giving children direction instead of trying to control them, according to developmental psychologist Diana Baumrind’s theory

One expectation parents of children who grow up to be financially successful is self-control. One 32-year study published in the Proceedings of the National Academy of Sciences, suggests that parents who ensure that their children control their impulses end up with more financially stable kids. These kids also tend to be healthier, engage in less criminal behavior and are less likely to face substance-abuse issues.

3. They’re investing for their children.

Unfortunately, most parents don’t open any kind of investment accounts for their kids.

According to a recent CNBC + Acorns Invest in You survey, 53 percent said they haven’t opened any kind of account. Specifically, just 32 percent said they’d opened a typical savings account. Only 13 percent have college funds. Just eight percent have money in bonds, cash or certificates of deposit. And, less, only seven percent have an individual retirement account or Roth IRA set up for their kids.

But some successful parents choose to invest for their children—at least until their children can invest for themselves. For example, some put money away for their children’s education; others go so far as to opening trust funds for their children.

Research from student loan company Sallie Mae shows that 90 percent of parents agree that college is an important investment, and about 60 percent of parents are saving to pay for it.

While trust funds are less popular, some parents do open them to support their kids’ futures. A Survey of Consumer Finances report (via FiveThirtyEight) shows that, of the 1.3 percent of people who receive money in a trust fund, 73 percent of them have inherited the funds from their parents.

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