How Your Budgeting Habits Impact Your Kids

Growing up in poverty or economic instability can impact your budgeting and money habits long into adulthood.

Fawn Bowe, the founder of Skincare Stacy, recalls being acutely aware of just how much she was costing her parents growing up. Whether it was a $5 pair of socks or not having money to get ice cream with her friends, it left a lasting impression on Bowe, who said still deals with the ramifications today.

“I still struggle with the idea of spending money on myself,” Bowe told Newsweek. “In fact, my best friend had to convince me to buy a new belt last weekend because mine was falling apart, and I couldn’t fathom the idea of not just trying to hot glue it back together and keep wearing it.”

Bowe’s story is just one of many. The number of children living in poverty has been on the rise in the United States, more than doubling in 2022. While in 2021, 5.2 percent of children lived in poverty, that number grew to 12.4 percent or roughly 9 million children in 2022.

Even though most Americans have a monthly budget, 84 percent of those who do budget routinely overspend, according to a NerdWallet survey.

Those who experienced financial hardship during childhood are more likely to have common mental health disorders like anxiety and depression, a 2020 study from Elsevier found. They also were more likely to face poverty as an adult, with their childhood experiences linked to lifelong money problems.

The financial insecurity Bowe faced has even impacted her choice of profession. After watching how the 2008 recession affected her family and friends, she was never able to quite trust the security of a W2 job again.

“That’s why I’m an entrepreneur,” Bowe said. “I have seen and heard too many horror stories of loved ones being laid off during an economic crash that I can’t bear to go through it myself.”

“I experienced anxiety daily about rising inflation and housing costs, thinking about how I’m going to support my family and slash my budget should the worst happen.”

Bowe says running her own business and relying on herself is the safest option. No one will be able to lay her off or put her family at risk of losing their home, she added.

Financial problems as an adult often stem from unpredictable and economically stressed childhood experiences, experts say.

“It is a proven fact that children are more likely to face mental health problems if they grow up in a family that is low-income or has significant debt,” Ranesha Especto, a licensed counselor at Thriveworks, told Newsweek. “This is common because not only are the parents stressed and under pressure, the children’s basic needs are not met which causes them distress.”

When children have to worry about where their next meal comes from or if they will be able to stay in their home, they are likely to develop negative coping skills, like stealing to survive, Especto said. And these habits often continue into adulthood.

Parents’ relationship with money a key factor

Even growing up in a family where your sibling has a financially straining disability or health condition can make all children in the family more anxious in the future and not know how exactly to navigate the money they do have.

“Our view or relationship with money is learned early on,” Especto said. “So how we see the adults handling money is usually how we handle it.”

If you had a parent who always budgeted and had a healthy relationship with money, it’s more likely you would replicate this dynamic. But those without a solid example often find themselves lost and repeating negative patterns.

“Being around conflict or having negative experiences in any form can shape lifelong feelings about money and wealth,” Katie Lindquist, the owner of Wisconsin-based Lindenwood Financial, told Newsweek.

“Parents who put wealth on a pedestal high above other values or who put too much focus on the outward appearance of ‘having money’ can cause a child to have unhealthy, long-lasting feelings about money just the same.”

Since most children don’t grow up in households with excess wealth, feelings around money can stay with us even once we are far from those memories of economic instability.

“I remember my parents arguing about money when my mother would stop by a fast-food place to get some food because ‘that wasn’t in the budget,'” Lindquist said. “I remember seeing other kids with nicer clothes, shoes, sports equipment and feeling jealous and resentful because I didn’t have those things.”

Due to this, many children will end up overspending once they start making a good income instead of saving and investing, she said. They can also develop a ‘scarcity mindset,’ if they feel they will never have enough money to go around.

By reading personal finance books and learning from others who have achieved financial success, adults can uplift themselves from their past and the economic turmoil in it.

“Knowledge is potential power,” Lindquist said. “It becomes true power when it is put to use.”

Childhood Fears Live On

Many children from financially unstable families learn to equate their happiness with the level of money available or certain experiences associated with money.

Stacy Dervin, the founder of the financial advisory firm Tailored Financial Planning, grew up with one parent with a modest salary and another parent who earned vastly different amounts of money throughout the year.

“There were lots of anxious, lean times, and other euphoric times when there was so much extra money that we all got new stuff like clothes and got to go out for dinner,” Dervin told Newsweek. “This pattern taught me that availability of money was the driving factor of my mood and self-esteem.”

In her 20s, Dervin felt like she had to constantly spend money to create a lifestyle to feel good about herself. This meant shopping whenever she felt down.

At age 40, she now says she’s learned to be grateful for what she has and seek out other ways of boosting her mood, like writing in her journal.

And when it comes to reflecting healthy money habits to your children, communication is key. Financial advisors suggest talking about money with them early and often, with full honesty about your financial situation and the best ways to budget, save and invest.

“Children learn by watching the adults in their lives,” Andrei Vasilescu, the CEO of couponing platform DontPayFull. “If you are responsible with your money, your children are more likely to be responsible with theirs.”