Study Shows Credit Card Debt Affects Kids Too
Being in credit card debt is stressful. And the last thing parents want to think about is how their financial stress might be affecting their children.
For financially strapped families, having one more thing to worry and feel guilty about is a terrible feeling. But a new study from T. Rowe Price might actually be empowering to parents. They surveyed a thousand parents of kids ages 8 to 14 and found that while the parents’ financial habits did affect their kids – kids tended to pick up their parents bad money habits – parents can counteract any negative modeling by simply talking to their kids about money.
Parents who openly discussed money matters with their children were more likely to raise kids with healthy attitudes toward money. For example, kids whose parents had been through bankruptcy, and who were aware of it, were more than twice as likely to say they were smart, or even extremely smart, about money compared with their peers whose parents’ bankruptcy had been kept secret from them. Eighty-six percent of kids who knew their parents were struggling financially considered themselves smart about money, while only 30% of kids who were unaware felt the same level of financial confidence.
Talking about money is the key
Among all the families surveyed – those who had experienced bankruptcy and those who had not – kids whose parents regularly talked about money with them felt smarter about money. Sixty-four percent of kids who had weekly or more frequent money chats with their folks rated themselves as money-savvy, while only 41% of kids whose parents never talked about money felt they were knowledgeable about money matters.
Talking about things like responsible credit card use, debt, budgeting, the cost of college, and why they don’t take expensive vacations were all hot topics for the families who sat down with their kids for money talks on a regular basis.
Letting kids manage their own money helps too
Another thing parents can do is let their children decide how to spend and save their own money. “Kids who have the freedom to manage their own money seem to have better money behaviors and are more truthful with their parents about how their money was spent,” says T. Rowe Price senior financial planner Roger Young. “I know firsthand the temptation of helicopter parenting, but there is evidence of a downside to this approach when it comes to money.”