How Your Family Can Make or Break Your Financial Future

Families - we all love to hate them. We all know they have a huge effect on most aspects of your life — your education, your marriage, and most importantly, your mental health.

But what about your financial future? Apart from the usual suspects like leaving behind a huge inheritance, sponsoring your education, or giving you shelter for free, there is something else that you are bequeathed by your family, which is exponentially more important than any of these — your money mindset.

These are the five money decisions where the financial values that your family held are important determinants:

1. Debt or no debt

There are two kinds of families that lead to excessive debt appetite among their offspring — the ones with excessive appetites themselves, or the ones who avoid all debt at all cost.

The first kind desensitizes their children to the stress that comes with debt. The implied learning is that your income does not limit your lifestyle — credit cards can always fuel whatever whims and fancies you wish to obtain.

The second kind, on the other hand, fail to understand that debt is everywhere. Children are not blind to how other families are living and earning. They may see that others (the first kind) live lavishly while their own family is counting pennies. They may see that other families earn more on the back of debt (for example by buying rental properties or setting up businesses), income that their own family will never reach due to their steady but slow jobs.

On the other hand, families who utilize debt strategically while also pointing to the downfalls of credit contribute hugely to teens and young adults who do not fall into the debt trap.

2. Saver or spender

Families that set financial goals, chip away at them, as well as communicate them to their children, raise kids that are skilled at this important life skill.

Families that let their kids set and achieve financial goals raise kids that are pros.

Saving, after all, isn’t rocket science. All it needs is a little bit of delayed gratification and a pinch of planning. It could be as simple as a mandatory 10% cut from the child’s allowance, going towards a more expensive gift. Even better, it could be the child’s decision of what they want to buy, when, and how they will gather the funds required for that.

Or, the family could let the child spend all they have, and themselves spend all they have, leaving it up to the poor kid to figure out how the real world works.

3. Abundance or scarcity

Some families believe that opportunities are limited. They are stuck with what they have right now — for better or for worse. Anything beyond that is beyond their destiny too. The world is against them.

Others believe there is an opportunity everywhere. If others can achieve more, so can they. They believe there is enough out there for everyone, and it is theirs for the taking.

Though there is something to be said about systemic factors, it is abundantly clear (pun intended) which mindset is more likely to result in financially successful adults, even within the constraints that the system places — fairly or unfairly.

Families can teach this mindset by being prime examples of it. If you have an entrepreneur as a parent, or if your parents have multiple income streams (side hustles, in millennial language) going, children will learn that opportunities are an outcome of trial, error, and skill.

If not, children can still learn quickly by experience. In the beginning, it will be up to the parents to 'manufacture' income-generating opportunities for the kids — additional chores are an easy one. Or lending books to friends. Or helping around the neighborhood. It won’t be long before their brains start running on the same path, setting them up for life to create opportunities out of nothing.

4. Risk-lover or risk-averse

Risk and return are proportionately related. That is a fact.

But whether one has a positive bias towards the expected return or a negative one, is where family enters into the picture.

If the family has taken calculated risks and reaped rewards, nothing like it. On the other hand, if they have taken unnecessary risks but still reaped the benefits, it may heighten the child’s risk-appetite — for better or for worse.

The flip side of this is when families are the content 9–5ers, who stay in the 'lane’. Will the child then be as risk-averse? No. If the family is happy with their 'slow' pace, then yes it is likely that the child will also be appreciative of a sedate lifestyle. But if the family refuses to take risks but also complains about their resulting situation — the only lesson for the kid is that risk-taking, even if it backfires, will surely be better than this crib fest.

5. Inter-generational wealth vs early retirement

After a point in the wealth spectrum, the clear choice is between earning more in order to leave a more sizeable inheritance for your kids, or retiring earlier and having a longer retired life.

Sure, one can definitely do both. You can retire early AND leave something for the kids. But if you reduce the amount to be left behind, you reduce the time taken for retirement. It is a simple allocation of dollars — more for your kids or more for your retirement.

Most families will be somewhere on the spectrum — very few will leave behind a big fat zero and retire at 30, or leave millions while working till the day they die. They exist but are rare.

Kids however will sense which is prioritized by their parents, even when it’s a combination of both the goals. Whether they agree with it or not will depend on whether the parents (and the kids too, in this case, since they are the beneficiaries) are happy with their decision or not.

If the kids are able to enjoy most of their waking hours with their parents because they don’t need to work anymore, they might value that more than having a college fund handed over to them.

On the other hand, if the parents are able to chip in with for the down payment on the child’s first house, that may be appreciated too.

And what is appreciated, gets replicated. The parents' choice will certainly inform the child’s choice when they are in the same situation — the only question is whether it is a positive impact or a negative one.

How families impact your financial mindset and therefore success, isn’t a straight line equation with a simple input and output. But the impact is undeniable. It is helpful to acknowledge how some of your money beliefs may have arisen from how your parents handled money. Equally, it is important to understand how our attitudes will lay the foundation for our children’s financial life.

I told you it isn’t simple — but when is anything to do with family ever?