After the age of 20, you may find yourself slowly becoming your parents whether you’ve inherited their loud booming laugh, sense of style, or even that one annoying tendency. We know the basics of heredity and can possibly draw a punnett square for eye color, but how much do our parents’ experiences and attitudes affect our day to day lives? We do know that poverty and coming from a low income household greatly affects children in many aspects of their lives. But, it turns out that it’s not just household income that affects children. Your parents’ financial literacy and attitude also impacts your financial literacy and attitude towards money.
First, let’s start with what financial literacy means and why it matters for your life. Financial literacy is defined as “the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.”Simply put, it is the ability and skills to make educated decisions about your money. This impacts not only how you get your money but also what you do with it. People with low financial literacy may find making big financial decisions intimidating and might enter into agreements that do not benefit themselves. Imagine going to buy a car and not knowing about interest rates, the actual value of the car, or monthly payments. In this case, you may be easily talked into a car you cannot afford, paying much more than you should, or signing documents you do not understand. Someone with high financial literacy would be able to avoid these mistakes and dodge their long lasting effects.
So how does your parents’ financial literacy affect yours? As you may imagine, your parents can only teach you what they know. If they made poor financial decisions, you may see this as normal because of lack of exposure to better approaches to saving, spending, and earning money. They may have modeled poor habits which you picked up on whether consciously or not. However, if they modeled good habits, you would also see this as normal and replicate it later in life. For example, if you saw your parent haggle, coupon, or budget as a child, it probably gave you more appreciation for a dollar. Whereas if you saw your parent put everything on a credit card and live above their means, you may not understand the connection between money and the numbers on the screen. While small splurges may not seem too important, your attitude towards money will have a drastic impact on your life as those habits add up.
Another possibility is that your parents kept much of the discussion about money from you. Many parents and cultures consider finances an adult topic and frown upon worrying children. This is financial secrecy and it can lead to children who have no knowledge of basic personal finance concepts. These concepts are only required to be taught in schools in less than half of U.S states, leading to a reliance on informal methods of learning with the highest being mom and dad. Consider this: your parents talk about major financial decisions extensively, budget, and save without showing you. How would you learn those skills? Because your parents never taught or modelled those positive habits in front of you, you start your adult life without the benefit of all of that knowledge.
The relationships between parental financial knowledge and attitude are numerous, but the important thing is acknowledging them and taking the time to reflect on your own situation. Your parents may have been too frugal, leading you to overspend in an effort to overcompensate. They may have been careless with family finances and not balanced needs with wants leading you to live above your means as well. Whatever your situation, make sure to take a step back and analyze your financial history and its impact on your life. This process is not about pointing blame but more about understanding who inspired your amazing money habits and also finding holes that need filling. Thankfully, we do have many options for filling in those gaps. You could learn about personal finance through websites such as Cashcourse, Khan Academy, or Investopedia. You could even watch videos on YouTube, Instagram, or even TikTok! Get to learning in any way that fits your needs (and attention span) so we can continue breaking generational cycles and setting our own.