Let Your Kids Make Bad Financial Decisions


April 10, 2017

There’s so much info out there about how to raise our kids. Too much sometimes, if we are being honest! We constantly talk about our choices and preferences, sharing information and opinions in person and online—yet when it comes to money, we clam up. We don’t talk to our friends and family about our own finances and we often don’t talk to kids either, out of politeness or worry or both. And it’s not always because we don’t know what we’re doing when it comes to money management, either—even savvy parents don’t realize the importance of sharing their values and experiences around finances.

Just as important as talking is experience. Kids are wired to learn by doing, but all that doing comes with a caveat: they might get it wrong sometimes. Or many times. And as parents, we would do nearly anything to prevent them feeling the pain, embarrassment, and disappointment that comes with failure. Yet in order for them to become healthy, autonomous adults who thrive, they must figure out how to accept making mistakes, learn from them and move forward.

This is true of everything, including managing money. “Letting them make mistakes — spectacular ones even — is a great way to go, because then they learn, and they’re not making mistakes when they’re 24 and it could screw up their credit score.” Says Ron Leiber, author of The Opposite of Spoiled.

So what kind of mistakes make sense at this age, and how much can kids learn exactly? Here are a few examples:

Lost money

It’s important to let kids handle their own cash—and that includes keeping track of it. If they lose their lunch money or wallet, that’s a hard lesson. There will be tears (quite possibly from both of you.) Try and resist the urge to bail them out, and help them by asking good questions like “Where’s a good place to keep your cash so it doesn’t get lost?” Let them decide where their wallet lives, which pocket of the backpack they will always keep lunch money in. Taking ownership is a key part of managing money.

Blowing their savings

Rather than teaching your child what to do, teach the value of making choices. Ultimately, how they spend and what they spend on will be their decision. Of course, if something is detrimental to their health or physical safety, you can intervene. Letting them spend unwisely now, though, will help them learn to deal with the consequences for their actions while the stakes are pretty low. Resist temptation to bail them out, but do give them support and encouragement as they start over with their savings, and have them prepare a budget, a savings goal, or just categorize how much should be spent on what.

Racking up debt

This one might be really tough, especially for those of us who have had to live with the burden of paying off credit cards or student loans. It also takes some advance thought as to what your family rules will be about borrowing cash “from the house,” or using mom and dad’s credit cards to make a purchase (probably not till they are teenagers, but it’s good to know now what you’ll do.) Whatever you decide, letting your kids experience what it means to pay back a loan, with interest, can be a good lesson. If you’ve got more than one child, they may borrow from one another—let them fight their own battles around loaning and repaying money. It’s a good lesson for the borrower and the lender.

Have you let your kids make money mistakes? We’d love to hear from you about your experiences!

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