4 Biggest Financial Mistakes Parents Make

After being a parent, I've learnt something.

Just like how no one in this world is perfect, there's also no such thing as a perfect parent.

You can read all the parenting books you find, do all the things you think are best for your kids, yet somehow along the way, you will still make mistakes.

That's okay, of course, because it's a learning process.

I myself have been guilty of one of the biggest financial mistakes parents make, which have caused me to lose 40% of my investments more than a decade ago.

I "invested" foolishly in a unit trust, without really understanding what I was getting into until it was already too late. And by then, I was already in it for 10 years! 

This, of course, could've been easily avoided had I been more diligent. I wouldn't have dragged my entire family with me.

See also: Best Tips for Handling Financial Stress

But what's happened has already happened, all I could do was to learn to do better next time.

The saddest part is I'm seeing more and more parents make the same mistakes I did a decade ago and impacted their families, too.

And I've come to realise some of the biggest financial mistakes parents make:

1. Not planning for the long term

It takes time to build up your savings. It also takes time to get returns from your investment.

Unfortunately, not many parents realise this.

Many of them only start planning when their child is relatively grown-up. By then, there is a lot of scrambling after realising they started too late.

To compound your money is to make use of the years to grow them. So by not starting early to plan for the long term, you're losing precious years.

Instead of just diving into parenting books, start planning out things early and for the long term, like your child's education funds, your family rainy day funds, the family's insurance and things like that. This way, your money has time to work in the background over the years.

Remember, no legit investment gives you overnight results, and if they tell you it does, it's most likely to be high risk or simply a scam. 

2. Not bothering to get financial education

Probably the biggest financial mistake parents make is this. Financial management does not come naturally to anyone, unlike blinking or breathing. So like everything else in our lives, it has to be learnt.

Sadly, our parents, who did not have the luxury to pick up anything around this in their time, do not even have a clue how to do it, let alone teach us. In school, this was not touched on either. That's why even now, most adults have no idea how to manage their own money.

Financial education can help you build a strong foundation for financial well-being. It can help you plan, manage your money, make wise decisions, and, most importantly, help you avoid making costly mistakes.

So it is up to us now, as adults, to find practitioners and subject matter experts to keep us educated – the people who have been there, done that; the people who are familiar with the pitfalls.

Being financially educated will not only benefit you but also your entire family. 

3. Spending too much on your children

As parents, we've all been guilty of this at some point. Even though it is all coming from the space of wanting the best for our children, some things are, ironically, not always the best things for them.

Things like lavish baby showers and birthday parties, while nice to have, do not contribute much to your parent-child relationship, nor does your child need it. A low-key birthday party at home with family and some of their friends will make them just as happy, if not more. 

There are also a lot of parents I've seen who would push their children to get into tons of enrichment classes, especially during the holidays. These are not cheap.

Of course, if your child is struggling and needs more guidance in his/her studies, this will be a good idea. But other than that, this is actually a needless expense and it is highly likely your child is not enjoying it either.

4.  Buying the wrong investment or savings plan

In an attempt to do something for the family's benefit, well-meaning parents would sometimes seek out financial advisors to buy savings or investment plans for their family's future.

And that's great - it's financial planning for the family.

However, a lot of these people who went in are also completely clueless about what they're doing. They can only hope they've found a good financial advisor who can sell them the right products for their family.

In fact, some would just seek out their relatives or friends who are in the insurance business. Sadly, half of these would usually end up realising they've bought the wrong policies. High premiums, low coverage, and low returns from an investment – the worst possible outcome you can get from buying insurance.

Now, I'm not saying you shouldn't trust your financial advisors. I've met many good ones in my life. That said, it is good to bear in mind that not all financial advisors have your best interest at heart, so, again, being financially educated can save you a whole lot of trouble here. 

It's one thing to make financial mistakes for your own finances, it is another thing when you're a parent, because then, the impact will be felt throughout the entire family.

Thankfully, most of the biggest financial mistakes parents make can be remedied and even prevented by getting proper financial education now.

Start by signing up for a seat to our free investing bootcamp.

~ Pauline Teo