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10 Bad Money Habits You Learned From Your Parents and Need To Break Now

Cynthia Measom
·9 min read
pixdeluxe / Getty Images
pixdeluxe / Getty Images

An “Invest in You” savings survey by CNBC and Acorns found that some Americans are harboring what could be viewed as bad money habits. For example, 27% of Americans rarely discuss their personal finances with family. And 75% of Americans manage their own money, whereas only 17% hire a financial advisor.

Discover: See the Full List of Money’s Most Influential and More

So if these Americans aren’t forming their money habits based on help from a financial advisor, who is their financial role model? According to the survey, 37% of respondents said it was their parent.

Does that mean that the financial habits your parents have are bad? Maybe so and maybe no. It depends on what those financial habits are.

Some bad money habits are glaringly obvious. You know, like paying only the minimum on a maxed-out credit card each month or always spending extra money on wasteful items. But some aren’t so obvious — especially if you’re following the example set by a parent who serves as your financial role model.

To find out where you stand, check out these 10 bad money habits people learn from their parents, and see if any of them ring true for you.

Last updated: April 15, 2021

Dad and daughter saving money to piggy bank.
Dad and daughter saving money to piggy bank.

Focus On Saving Your Money

Kristin Burton, founder of Strive Coaching, believes that one bad money habit learned from parents is to save your money.

“At first glance, this looks like great advice, but if you dig deeper it is missing a fundamental piece of wealth building,” Burton said. “Saving money should be reserved for an emergency fund (three to six months of monthly expenses set aside for unforeseen events) and “sinking funds” (money set aside for large, planned purchases). Aside from that, you can never save your way to wealth! You have to be investing. All money that is not specifically for an emergency fund or sinking fund should be invested, not saved.”

See: Investing for Beginners: What First-Time Investors Need To Know

Max Fund Your 401(k) Instead of Paying Off Debt

Chuck Czajka, founder of Macro Money Concepts, said that max funding your 401(k) when you have credit card debt or student loans is one on a long list of bad money habits taught by parents.

“The 401(k) earns interest, but the whole account is taxable when you take the money out,” said Czajka. “So, you’re losing interest to credit card debt and student loans, and going to continue losing in the future to taxation on your 401(k) or IRA. It’s better to pay off that debt first, then save for retirement.”

Check Out: 27 Best Strategies To Get the Most Out of Your 401(k)

Be Ashamed of Money Mistakes

Gretchen Caldwell, CFP and president of Pure Planning, believes that one bad money habit parents teach is to be ashamed of money mistakes.

“I’ve yet to meet a client who hasn’t made a financial mistake,” said Caldwell. “We all make them! The key is to make a change once you realize the error. Clients who learned from their parents to be ashamed of money mistakes are the ones who have the hardest time both making a pivot out of the mistake and forgiving themselves for their error. Dwelling in shame doesn’t fix anything. In fact, it often makes the situation worse.”

More: 20 Things Your Kids Can Learn From Your Retirement

Daughter Helping Senior Mother With Computer At Home
Daughter Helping Senior Mother With Computer At Home

Play It Safe With Investments

Andrew Latham, certified personal finance counselor and managing editor of SuperMoney, said one bad money habit that parents impress upon children is to keep money in safe investments, such as certificates of deposit.

“Don’t be too hard on your parents: Investing in certificates of deposit wasn’t a bad idea when they were young,” Latham said. “In 1980, three-month CDs peaked at an impressive 18.65%. However, as of April 1, the average rate is 0.07%. CDs might have worked for your parents, but a well-diversified investment portfolio that includes a good mix of stocks and bonds is nearly always a smarter option.”

Latham acknowledged that deposit accounts are a safe bet in the sense that they’re guaranteed by the FDIC, and you won’t lose the principal that you invest. But there’s a downside, too.

“They are also a terrible investment because you are guaranteed to make less than the inflation rate, which is around 2% APY,” said Latham. “So, investing in safe certificates of deposit is guaranteed to make you lose purchasing power (i.e., money).”

Read: 26 Smartest Ways To Invest Your Money During the Pandemic

Buy an Insurance Policy To Cover Your Funeral Costs

Andrew Herron, CFP and managing partner of Stone Pine Financial Partners, believes that parents’ advice to buy “funeral life insurance policies” qualifies as a bad money habit.

I can’t tell you how many times I’ve seen baby boomers that have a small (and expensive) life insurance policy that is intended to help with burial and funeral costs,” said Herron. “Now there’s nothing wrong with this in and of itself, however, if you have significant assets in the bank or in retirement accounts you do not need this type of policy! Your beneficiaries will inherit your assets and can use a small portion to pay for any funeral-related costs. For some reason this idea persists that it is smart to have these funds set aside in a whole life insurance policy, but if you have other assets that will be inherited, then you are likely just paying for insurance you don’t need. To be clear, you very well might need term life insurance for your family when you have a spouse and/or kids, however the idea of having a separate and permanent policy for funeral costs is an outdated idea that needs to go away.”

See: Old-School Money Advice You Shouldn’t Follow Anymore

Back view of happy family is standing near their modern house and hugging.
Back view of happy family is standing near their modern house and hugging.

All Debt Is Bad

Brittney Castro, Mint CFP, said that treating all debt as something negative is a bad money you should break.

“Debt isn’t always a bad thing,” said Castro. “For example, taking on student loan debt may be the reason you’re able to earn your college degree, which will eventually increase your lifetime earnings. Or taking on a mortgage may help you one day buy a home. These examples can be considered ‘good debt,’ as they’re tied to an asset that should continue to grow in value or can eventually provide a return on your investment.”

However, Castro did advise to proceed with caution.

“That said, no debt feels great, and if it isn’t carefully monitored or managed, it can quickly overrun your life,” she said. “Always make sure you’re realistic about your overall financial situation before taking on any debt. An app like Mint is great to consolidate your liabilities (good debt, loans, credit card balances, etc.) and assets in one place to easily visualize how much debt you’re carrying compared to your available funds, and determine what sort of budget plan you should follow in order to eventually pay your debt off.”

Find Out: How Much Debt Americans Have at Every Age

Man and woman signing documents with help of young woman indoors.
Man and woman signing documents with help of young woman indoors.

You Should Have a Certain Amount of Money by a Certain Age

Having a certain net worth by a certain age is a piece of advice your parents may have lived by, but Castro disagrees.

“Though I have never felt this to be true, this past year has highlighted that everyone is on a different financial path and comes from their own unique financial beginning,” Castro said. “Instead of worrying about your age and the made-up net worth that society says “should” go along with it, focus on increasing your net worth year after year by accumulating assets such as savings and retirement funds, and paying off your debts such as credit card debt, personal debt or student loans. Then celebrate your progress. If you have a year where your net worth decreased, ask yourself why and focus on creating a game plan to increase your net worth again in the upcoming year.”

More: How To Calculate Your Debt-to-Income Ratio

millennial grandchildren with baby boomer grandparents
millennial grandchildren with baby boomer grandparents

Always Do It Yourself -- No Matter What

Rubina K. Hossain, CFP, believes that always doing it yourself — an example her parents set — is a bad money habit that you should break. Here’s her story.

“My husband had accepted a job in a different state, and the company gave us a lump sum for relocation,” Hossain said. “It was up to us how we spent the proceeds. My parents, who both come from very humble backgrounds — without running water, electricity, etc. — immediately volunteered to pack up our townhouse instead of hiring a moving company. I was busy with my 1 year old, my husband was still working and my parents were breaking their backs to move us.”

Instead of committing to DIYing all the time, Hossain offered this advice: “I have since learned that time is money,” she said. “If you can outsource time-consuming, literally back-breaking tasks, please don’t hesitate. Use that time to better yourself or spend quality time with family (like grandkids), which is an investment in and of itself!”

Read: Money Can Buy Happiness… So It Seems

Pay Off Your Mortgage ASAP

Adam Goetz, partner at Burstin & Goetz and president of MassMutual’s Advisor’s Association, believes that putting everything you have toward paying off your mortgage ASAP is a bad money habit you need to break.

“For the longest time, this was the goal of every homeowner — the mortgage burning party!” said Goetz. “However, this isn’t 1982 and 17% mortgages are not the norm. When rates are as low as they currently are — sub 3% for 30 years for many — take advantage and free up cash flow. Even with the lack of deductibility for many via the increased standard (tax) deduction, locking in such advantageous rates to allow for investment in other places is a great opportunity. I hope to have a mortgage for life — as long as I can keep getting such terms!”

Read: 40 Money Habits That Can Leave You Broke

Senior man talking with his adult sons in garden, close up.
Senior man talking with his adult sons in garden, close up.

Don't Talk About or Discuss Money

Brandon Steele CFP, ChFC and the founder and president of Mainsail Financial Group, believes that avoiding talking about money is a bad money habit that needs to be broken.

“I grew up in a family where finances were never discussed,” said Steele. “In America, many of us have been raised not to discuss the topic of money. This is a huge issue. After all, how are we supposed to learn and earn financial literacy if we are never exposed to the topics? You should discuss money, and you should discuss money often. By consistently discussing finances, you will be introduced to topics you may have never been exposed to. Additionally, you may develop a more thoughtful relationship with money and what it can do for you in what matters to you. Finally, you will cement what you already know by having the chance to explain it to others.”

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This article originally appeared on GOBankingRates.com: 10 Bad Money Habits You Learned From Your Parents and Need To Break Now