Bad with Money? Blame Your Parents

New research shows how financial attitudes are passed down between generations.

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Mary Ann Campbell, a financial educator, received mixed messages about money growing up. Her parents, in fact, implied that sending a girl to college was a waste of money, so she had to find a way to pay for her own education, along with the help of one of her brothers. That's one reason Campbell decided to explore how money attitudes are passed down between generations in her Ph.D. dissertation at Iowa State University.

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After intense one-on-one interviews with 20-somethings about how their families talk about money, Campbell found recurring lessons that parents and grandparents teach their offspring. The importance of living within your means was the most common message, followed closely by the importance of planning ahead, saving, and limiting debt.

"I was surprised at how many of the students wanted more communication [about money] with their parents," says Campbell. Because of the recession, many of her students have lost trust in the financial system, and are hungry for clear and structured details about how to invest and grow their money, she adds.

Campbell discovered that the way parents and grandparents talk about money, as well as the way they act, appears to make a big impact. While most of her 20-somethings learned about frugality and saving, the interview subjects who didn't have the benefit of those lessons—either because their parents spoiled them or their parents seemed to struggle with money themselves—repeated some of those same mistakes. Her students, she says, often didn't even realize how much their parents had influenced them until she started asking them questions.

Alana, who started college with relatively free access to her parents' credit card, overspent at first. Her parents quickly enforced a budget and some spending rules, but Alana still overspends on trendy clothes and other splurges.

Megan has also suffered financially because of her parents, but for very different reasons: Her father often failed to follow through on this promise to pay her allowance, and embarrassed her at stores by asking clerks if he could make a deal to pay less than the total. "My dad is cheap with his money," she told Campbell in an interview. Her parents' divorce only seemed to complicate money matters further. Today, Megan has trouble trying to save money and often feels like she's falling behind on her budget, even though she tries to avoid keeping up with the latest clothing trends.

But despite the stereotype that 20-somethings are bad with money, most of Campbell's subjects appeared to benefit from the closeness they felt to their parents. April, who comes from a small, rural town in the American South, learned from a young age that it was wasteful to spend money on brand-name clothes, and that if you want something, you have to work for it. Her dad often encouraged her to invest at a young age, and start saving early for retirement. As a result, April minimized her own student loans and credit card debt.

Meanwhile, Jason watched his parents often fight over money, since his father tended to be an impulse buyer while his mother was more of a saver. Jason learned from watching his mother, and today avoids credit cards altogether, opting for cash instead. He's also committed to paying off his student loans as soon as possible.

Similarly, Carley, a design student, learned from her parents to shop the clearance rack, live below her means, and more unusual, to be generous. Her parents gave her grandmother a house of her own even though it meant losing out on the profits from the sale. Now, even though Carley is as fashion-conscious as her major would suggest, she spends less than she earns and either shops sales or in bulk. "Save, spend, give," was the mantra repeated by her parents, and one she now lives by.

[See 5 Smart Ways to Save Money for Your Children.]

The bottom line: Parents play a big role in how their children think about money. "The strongest messages are the ones children see. They know when you're hiding shopping in the truck or the closet from your spouse. They hear and see you fight over finances. They see you gamble. They're smart and sensitive and it brands them. Model the behavior you want them to have," says Campbell.