Parents always want their children to succeed, but the new Parents, Kids & Money survey from mutual fund company T. Rowe Price shows many parents are "unrealistically optimistic" about their children's financial future. This over-confidence can result in behavior that ignores the long-term strategies and financial discipline required for kids to achieve financial success.
Most parents (73 percent) say they regularly talk to their kids about money issues – and that's good. It's what they're talking about that concerns T. Rowe Price senior financial planner Stuart Ritter.
"These conversations are focused almost exclusively on short-term goals, such as back-to-school shopping or family vacations," he said.
Kids and parents aren't dealing with long-term family goals – like saving for college.
"Even with younger children it's important for them to understand that there are longer-term goals and that planning for them requires making decisions today," Ritter said. "This needs to be in the mix of the priorities and trade-offs the family is making."
And it's not just talk. They survey found that more parents save for vacation (46 percent) than for college (41 percent). And less than two-thirds talk to their children about how their college education will be paid for.
A surprising finding: 14 percent of the parents stated they discourage their kids from talking about money.
Ritter, a father of three young children, believes it's critical to explain how the financial world works. Explain how bank accounts work. Explain the pros and cons of using a credit card. Explain how to save for that first car.
"Recognize that your kids are learning about money whether you're talking about it or not," Ritter told me. "They observe what's going on … and they're likely to come away with a lot of misconceptions and incorrect conclusions without the input and guidance that a parent can provide."
His advice: Take advantage of everyday teachable moments to discuss how money works. Ritter believes this is critically important if your kids are going to develop the financial skills they will need.
Another key finding: A third of the parents surveyed said their biggest financial regret is overextending themselves financially.
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The survey shows that many parents are not covering the basics needed to create a secure financial future for their families:
- 50 percent do not save regularly for retirement
- 48 percent do not have emergency savings
- 54 percent do not have life insurance
- 74 percent do not have an up-to-date will
Nearly all of the kids surveyed (97 percent) said they learn their money habits from their parents. That's hard to do when mom and dad don't agree on the right way to handle money matters.
Nearly half the parents (47 percent) said that when it comes to family finances they don't always see eye-to-eye, and the kids are picking up on that. Forty-four percent said they know their parents disagree about money issues.
"If the parents can't agree, the kids don't know what to make of that," Ritter said. "They'll be confused by that confusion and it will prevent them from learning what they need to know about making good money decisions."
To help families talk about money, T. Rowe Price just launched MoneyConfidentKids.com which can be used by parents and educators. The site includes online games parents can use to start a conversation with their kids. They've also created an interactive game called The Great Piggy Bank Adventure.