How to Raise Successful Kids (Effective Parenting)

Welcome to We're Talking Money. I'm Phil Clark, your host, and I want to talk to you about a topic that it's not just for parents: teaching kids about money. Whether we realize it or not, our kids, they're always watching and learning from us, the adults, especially when it comes to finances. So let's talk about how to avoid common mistakes and turn everyday moments into powerful lessons that will set them up for lifelong financial success.

Children always observe adults, especially their parents, even during the most unexpected moments. It's simply part of how they learn. Young people, they will do one of two things when it comes to forming habits. They will copy what their parents or other role models do, or number two, they'll recognize the adult's behavior as something that probably should be avoided. That's called discernment. And the problem is that it can take years of growing and learning before developing such discernment. This makes it vital to model the behaviors and values that you want your kids to carry into adulthood, particularly when it comes to money. Learning at an early age is imperative.

Let's explore some of the common pitfalls. The first point I want to talk about: thinking that your kids need everything that other kids do. It's so easy for parents to feel pressured into buying their children the latest gadgets or trendy clothes just because their friends have them. But that's part of peer pressure, but it doesn't mean you have to take action. So a better approach: just ask yourself why you're considering making this purchase. Will it truly benefit your child? Will it enhance their education or develop a skill? Now, there's nothing wrong with treating your kids from time to time, but they must appreciate the cost and the effort behind those treats. Otherwise, they will grow up placing more value on acquiring things than on earning them.

Now, the second thing: it's hiding the cost of things that you may be purchasing. Many parents believe that shielding kids from financial realities somehow protects them. It can leave a child, or your children, unprepared to manage money as they grow and become adults. I hear parents echo what they hear in the mainstream about children graduating college without debt. They began adopting the idea of, I'm not going to let my kid finish school with any debt. I'm not saying it's wrong to pay for your child's education, but the fact is an education with no cost to the one being educated just might not have any value.

Now, what's a better approach? Let's use everyday transactions as teaching moments. At a restaurant, show your child, or your kids, the bill and explain how the check works. Discuss taxes and tips and how servers rely on gratuities as part of their income. All of that comes from that little bill that you get in the restaurant. Transparency, it can help a child develop a healthy understanding of money and its role in daily life. Now, as they grow, teach them the benefits of budgeting. That's not spending more than they have, and saving first before buying the latest gadget. If you fail here, it's going to create lasting effects.

Now, the third thing is misusing credit cards around your children, particularly teens. Credit cards can be really tricky for teenagers who don't yet understand the consequences of not paying the balances. While credit cards are powerful financial tools, and they can be very good tools, they can also lead to overspending and a lot of high-interest debt if they're mismanaged. Did you know that today the average rate of interest on a credit card is north of 22%? That means in just four years, if not handled properly, you could almost double the cost of the balance on your credit card. If you look at the United States today, our debt is north of $36 trillion. Every 12 months, our country has to pay $1 trillion or more in interest payments alone. That's the result of reckless spending, much like people do on a credit card.

So what's a better approach? Cash allowances, to show kids the tangible nature of money. Help them differentiate between needs and wants, or sometimes here at the firm we call them required versus desired expenses. Teach them about those needs versus wants and get them involved with budgeting exercises. There's great software out there that doesn't cost you a thing, and it can help your kids get a little more acclimated to the real working of money.

The fourth thing: it's constantly giving out money. Do your kids often ask for money, and do you find yourself handing it over without much thought? This habit can prevent children from learning the value of earning and saving. A better approach: establish some rules about when and why money will be given. Consider trying allowances for things like chores, or encouraging older kids to earn through part-time jobs. Don't be embarrassed or feel like you're letting your child down when you don't open your wallet at every request. Discuss budgeting and emphasize that you're not an unlimited source of funds.

And number five: intervening when kids are saving for something. There's nothing more empowering for a child than working hard and saving for something they really want. I remember my first home stereo with standing speakers. I was a teenager, and every teenager at the time wanted one. So I gave a store a down payment, and I made payments until the stereo was paid in full, and it was mine. One of the proudest moments ever. The difference then compared to today is I didn't get the stereo until all payments were made. Back then it was called a layaway, and you paid on it until it was paid for, and then you could get the goods.

When kids turn to credit cards, what they really tend to miss is the interest cost. Typically the debt rolls over each month and interest accrues. This instant gratification, it ignores patience. It encourages bad habits. So if you, the parent, if you step in to purchase for them or let them use a credit card, you undermine the sense of achievement and you destroy their ability to learn patience. Please let them learn patience. A better approach: celebrate their effort. Get involved with them. Help them understand how great it is to achieve something by working hard and saving their dollars. Let them experience the pride of reaching their goal independently.

And now we reach number six: competing with an ex-spouse. Please hear me on this one. When divorced parents try to win their child's favor through material gifts, it can create confusion and unrealistic expectations. They often forget their role, particularly when they're competing. It's not your job to be your child's best friend. You're the teacher, the nurturer, and the voice of reason. Getting your kid to like you is not the goal. I know it can seem that way, particularly after a divorce. Getting them prepared for life, that should be your goal. So what's a better solution? Open a line of communication with your ex-spouse. Set some financial boundaries and rules. Consistency in both households, it's going to help your child develop healthy attitudes about money.

Remember, your kids are always watching and learning from you and the adults that you hang around. If you've made financial mistakes, own up to them and show your kids how to course correct. By being honest and intentional, you can set them up for a lifetime of smart money habits.

Thanks for tuning in to We're Talking Money. I appreciate you watching, and if you found this video helpful, don't forget to like, subscribe, and share it with other parents who might also benefit from these tips. Until next time, I'm Phil Clark, reminding you to keep the conversation about money open and empowering. I'll see you next time on We're Talking Money.