How emotions are connected to money and some of the common mistakes that parents make regarding financial decisions.

By Nancy Kislin

When I was growing up, my parents often struggled with finances, so I would always be worried about not having enough money. As I grew older, this fear continued to linger in the back of my mind. Now, as an adult with a family to take care of, I continue to worry about not having enough money. My experience has helped emphasize the reality that financial behavior is greatly determined by people’s backgrounds and personal experiences with money. Many times as parents, we fail to see the effects that our money management skills or even the way we speak about money in front of our kids can affect them. I was able to sit down with financial advisor Scott Cirelli to talk about the common mistakes parents make regarding financial decisions.

When asked what are some of the biggest financial hurdles that parents face while raising kids, Scott firstly answered with debt. Oftentimes, parents have outstanding debt that they bring into the marriage, which helps compound their individual debt as they settle into a new home and begin to spend money as a couple. Couples build debt easily not only because they have mortgages and college loans, but because they may live beyond their means with luxuries such as expensive cars. The reason that debt piles up, Scott explains, is that people start to save money too late. People often neglect to save money at a young age, getting caught up in securing things they need and want at the moment and fail to pursue a long term financial plan. However, saving money should go hand-in-hand with spending. Meaning, there needs to be a balance between the two. Starting to save money at a young age is important, even if it is a little at a time. The money that you invest over a longer period of time will accumulate and is the most sustainable option that will help serve as the basis of your assets.

While talking about financial decisions, we mistakenly leave out the emotional and personal aspects of them. However, as I have experienced, our relationship with money is greatly impacted by our feelings and experiences. Scott explains that parents often do not deal with underlying emotional issues, or see how they tie in with their spending and saving habits. With my personal anxiety towards money, I have noticed how when I leave it unchecked, I am unwilling to take risks with money and am sometimes hindered from making thoughtful and productive financial decisions. Likewise, on the other end of the spectrum, people may not realize that they are spending money excessively, for example, to cope with stress. Thus, in order to get to the root of our financial decision making, we need to ask ourselves -- what am I thinking or feeling when I spend or save, and who or what has influenced my financial decisions?

Our feelings towards our finances should not be silenced, especially in our households. I encourage you to talk about money with your spouse. Discuss your fears and comfort zone about taking risks with money and saving money. Using statements such as “I feel good when we have X amount of money in the bank account,” allows you and your partner to be clear with each of your financial preferences. As for the first practical step towards a better financial future, I suggest that you work to get rid of your debt, because the more you wait, the more it will increase. However, I understand that getting rid of debt is easier said than done, so I encourage you to seek out a financial advisor who will help you create a plan to lower and eventually get rid of debt.

As parents, we also need to make sure we are making the best economic decisions for our children. I recommend starting a 529 plan, which is a savings plan dedicated to future education costs. The 529 investment account will help cover tuition, fees, textbooks, computers, and sometimes room and board that can be applied to both college and K-12 expenses. When family members, such as grandparents, give gifts to your children for birthdays and special occasions, encourage them to instead donate to the 529 savings account.

In addition to being financially prepared and communicating with our spouses, it is important to talk to our children about finances. When we give our children money whenever they ask for it, we fail to provide them with a healthy foundation of managing finances, because they are unable to understand that money needs to be earned. While we don’t need to include children in the same conversations regarding our household finances, we can still help teach them the importance of saving and spending money wisely through our parenting.

With my children, I had an allowance system. Each time they completed the chores they were responsible for, they were given a certain amount of money as a reward. By giving children allowance as a reward for doing chores, they can understand that money needs to be earned. This in turn encourages them to be more aware of their money and spend it less, knowing that money does not come easily. In developing this systematic routine, children will also be able to gain more responsibility and independence as they can understand the process of earning money and managing a larger amount on their own.

After children receive money, whether it's through their allowance, monetary gifts or through a part-time job, teach them how to invest and save their money. When children receive money, they are often eager to spend it. As parents, we must show them the benefits of saving a percentage of that income, and the value of having money to fall back on. We must also teach them that invested money increases through interest when saved. Helping our children see long-term and providing them with healthy spending habits will carry into their adulthood and give them the tools they need to be not only financially stable, but successful.

Your kids are paying more attention to you more than you realize. Thus, it is important to be thoughtful as to how you spend your money. When we show our kids how our money can make a positive impact -- whether it’s as an emergency fund or as donations for an important cause --

we can show them that money is not just about satiating our material desires. As parents, we need to help our children adopt a healthy mindset of money as something to sustain us, rather than something to indulge in. Include your children when you make donations and tell your children where you are making those donations. Involve your children in discussions about where to spend money and show them the power of being equally generous, conscientious, and ethical when it comes to finances. These discussions and practices will help your children see that every aspect of their lives is rooted in responsibility and resiliency, and will strengthen a character that goes beyond financial decision making.

Thanks to Scott Cirelli, Ameriprise for sharing your expertise.