For Parents

Financial Failures & Learning From Mistakes

Failures are just as important to talk about as successes.

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You’re sitting down with your kids, ready to tackle an important conversation: financial failures and learning from mistakes. As you share your own stories of missteps, like overspending or debt, you see the understanding dawn on their faces. But how do you turn those experiences into teachable moments? You know it’s vital to instill resilience and financial wisdom in them, especially when they’re young and still forming habits. What do you say next? Your approach can stifle or spark a healthy relationship with money – the impact is long-lasting.

Be Open and Honest Always

One of the most important things you can do when teaching your kids about financial mistakes is to be open and honest with them. This means sharing your own experiences, good and bad, and using them as teachable moments.

When you’re open and honest, your kids will feel more comfortable coming to you with questions and concerns, and they’ll be more likely to listen to your advice. You don’t have to share all the details, but being transparent about your financial decisions and mistakes will help your kids understand that everyone makes errors, even adults.

It’s okay to say, “I made a mistake, and here’s what I learned from it.” This helps your kids see that financial mistakes are a normal part of life and that they can learn from them.

Being open and honest also means admitting when you don’t know something. It’s okay to say, “I’m not sure; let’s figure it out together.” This shows your kids that it’s okay to ask questions and seek help when they’re unsure.

Explain Financial Basics Clearly

Many kids struggle to understand financial concepts because they are abstract and complex. As a parent, you play an essential role in breaking down these concepts into manageable pieces that your kids can grasp. When explaining financial basics, start with simple, concrete examples illustrating how money works. For example, you can use real-life scenarios like buying groceries or saving for a toy to demonstrate the value of money.

Use clear and concise language to define key terms, such as budgeting, saving, and borrowing. You can also use visual aids like diagrams, charts, or pictures to help your kids visualize these concepts. Make sure to explain the importance of needs versus wants and how making smart financial choices can impact their lives.

Encourage your kids to ask questions and engage in discussions about money so they can develop a more thorough understanding of financial basics. As you explain financial concepts, be mindful of your kids’ age and developmental stage. Tailor your explanations to their level of understanding, using relatable examples and avoiding jargon or overly complex ideas.

Share Personal Experiences Wisely

As you explain financial basics to your kids, you’ll likely encounter opportunities to share your own experiences with money—both successes and failures. When sharing personal anecdotes, it’s important to strike the right balance between honesty and discretion. You want to convey valuable lessons without overwhelming or worrying your kids.

Choose stories illustrating key financial principles, such as saving, budgeting, or responsible spending. For example, you might share how you once had to make a difficult choice between buying something you wanted versus saving for a long-term goal. Explain how you weighed the pros and cons, made a decision, and dealt with the outcome.

Be mindful of your tone and language when sharing your experiences. Avoid using language that might convey shame, guilt, or anxiety, which can create negative associations with money. Instead, focus on the lessons learned and the steps you took to correct mistakes or improve your financial decisions.

When sharing personal experiences, consider your child’s age and maturity level. For younger kids, you might focus on simpler stories, such as saving for a toy or treat. For older kids, you can share more complex examples, such as managing debt or building credit.

Encourage Learning From Mistakes

Embracing a growth mindset is key when teaching your kids about financial responsibility. You want them to understand that mistakes are an inevitable part of the learning process, and it’s how they respond to those mistakes that matters. By encouraging your kids to learn from their financial mistakes, you’re helping them develop valuable skills that will serve them well throughout their lives.

When your child makes a financial mistake, such as spending their allowance on something they didn’t really need, use it as a teaching opportunity. Ask them to reflect on what they could have done differently and how they can avoid making the same mistake in the future. Help them identify the consequences of their actions and come up with a plan to rectify the situation.

It’s also important to praise your child for taking risks and trying new things, even if they don’t work out. This will help them develop a sense of resilience and confidence in their ability to make financial decisions.

Foster Healthy Financial Habits

Now that your child understands the value of learning from mistakes, you can focus on helping them develop healthy financial habits that will serve them well throughout their lives. This means teaching them how to make smart financial decisions, prioritize spending, and manage their money wisely.

Start by setting clear financial goals with your child, such as saving for a specific toy or activity. Encourage them to prioritize needs over wants and make smart choices about how to allocate their money.

Help your child understand the importance of budgeting by creating a simple budget together. Allocate a portion of their allowance or earnings from odd jobs into separate jars or accounts for saving, spending, and giving. This visual system will help them see where their money is going and make conscious decisions about how to use it.

You can also encourage your child to make smart financial decisions by modeling healthy habits yourself. Let them see you making smart choices about spending and saving, and explain your thought process behind these decisions.

Talk About Failures, Too!

You’ve taken the first step in shaping your kids’ financial futures by having open conversations about failures and learning from mistakes. By doing so, you’re helping them develop a growth mindset towards money management. Curiously, research shows that 62% of kids aged 8-14 are more likely to make smart financial decisions if they have a savings goal in mind. Continue nurturing their financial literacy, and they’ll be well-prepared to tackle the challenges of adulthood.

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About the Author

David McCurrach

David McCurrach is the founder of Kids' Money. Following a career working in finance for several banks and credit unions, David started Kids' Money in 1995 and has since published three books on kids' financial literacy and allowance programs.

Last updated on: October 29, 2024