The Biggest Financial Mistakes Parents Make — And How to Avoid Them

With its high levels of stress and few hours of sleep, becoming a parent is a surefire recipe for sloppy financial planning. Everyone, from neighbors to relatives to predictive algorithms for Facebook ads, wants to scare you into spending money. Meanwhile, the bare necessities — diapers, clothes, cribs — are expensive enough on their own.

While the stress of parenting mellows, the ad hoc approach to spending often remains. Parents spend years spraying a dollar hose at camps, sports leagues, after school activities and whatever else crops up. After decades of indiscriminate spending, they’re unprepared for major life events ranging from college tuition and retirement to disability and death. Financial regrets? Like the great economist Frank Sinatra, they have a few.

But that regret isn’t inevitable. We asked financial planners about the biggest financial regrets they heard from clients who are parents. Many said their clients with kids wished they’d started financial planning sooner, which is unsurprising (honestly, only rich people start saving when they should). But they also shared counterintuitive advice about how to prioritize money over the long term. Here’s what you should know about the biggest financial mistakes, and how to change course before it’s too late.

The Financial Mistake: Pre-Baby Spending Sprees

Louisiana-based financial planner and father of four Alajahwon Ridgeway notes that eager parents-to-be overspend before their baby arrives. After covering the basics — crib, car seat, diapers, bibs and clothes — they don’t know where to stop.

“You never know exactly what you need and what is a luxury to have,” Ridgeway says. After a couple of months as a parent, though, it’s easy to see what’s collecting dust. “All the bottle warmers, newborn shoes, and baby bags were rarely, if ever used.”

How to Correct it: Ridgeway advises first consulting experts who have your best financial interests at heart. “Make a list of things you need by asking a trusted family member or friend,” he says. It’s better to react to needs as they arise than to try to predict them. “When the baby arrives, then buy any additional things as needed. I know a changing table sounds nice, but when you are in another room and you only got three hours of sleep, a towel on the couch will do just fine.”

As the head of a large household, Ridgeway’s bonus advice is to keep baby gear in good condition to avoid unneeded repurchases. “Babies grow out of things quickly, and you may just have four like me,” he says. “Which makes it easy to pass down old clothes that the baby wore for one Easter picture.”

The Financial Mistake: Not Starting to Save Sooner

With the money drain of diapers, daycare, and more, the early years of parenthood leave little wiggle room for savings. But as Michigan financial planner and father of four Paul Fenner says, parents who don’t find a way to start saving money early inevitably regret it. “The number one regret I hear from parents is that they did not begin saving earlier in their lives,” he says. “Whether that is saving for retirement or college, they regret or second guess the decision not to get started planning sooner.”

How to Correct it: The best time to start making your money grow is 10 years ago. The second best time is today. So, start socking away cash. Now. Ask someone you trust about how to make your money grow over time and follow their advice as quickly as possible. As Fenner says, the first step is the hardest. “[Parents can be] afraid of taking the first step or that their ambitions were unclear to where they did not know where to start or who to turn to support their family,” he says.

The Financial Mistake: Going Big on Your Kid’s Wedding

Weddings set the tone for a marriage in more ways than one. Couples want to launch their new lives together with joy and celebration and parents want to help. “Weddings bring in the whole family, and are discussed for decades afterward,” Ohio financial planner Curtis Bailey says. “Parents want the best for their children and offer to help foot the bills.” But joy and celebration don’t come cheap. “When the budget begins to go overboard, it is often the parents who continue to write the checks.”

How to Correct it: Don’t give your kids carte blanche for their big day. Be generous, but be generous with a single lump sum payment. “I have seen a few parents simply write a one-time check,” Bailey says. “That’s it. It sets the budget and gives the couple their first opportunity on how to spend it. Tradeoffs become more real for children when they write the check from their own bank account for wedding expenses.”

The Financial Mistake: Not Maxing Out a Roth IRA

Anthony Watson, founder of Michigan wealth management firm Thrive Retirement Specialists, finds that his clients often wish they would have funded a Roth IRA earlier in their career while both their income and taxation rates were lower. While contributions to traditional IRAs are tax-deductible and your earnings grow tax-free until you pay taxes when you start withdrawing from the account, Roth IRAs are subject to taxes while you contribute to them. “Plus, the ability to contribute to a Roth IRA gets phased out at an Adjusted Gross Income of $125,000 if single and $198,000 for couples,” Watson says.

How to Correct it: After maxing out their employers matching provisions to their 401(K), prioritize funding a ROTH IRA. “High growth assets like stocks in a Roth IRA early in life can put people in a great position later in life by giving them a sizable tax-free income source to fund retirement,” Watson says. “Combined with qualified retirement vehicles like a 401(k) or IRA that get taxed at personal income rates when withdrawn in retirement, an individual can craft a superior tax-efficient withdrawal strategy later in life adding tremendous value to their retirement situation.”

The Financial Mistake: Investing too Heavily into Bonds Over Stocks

Watson finds that his older clients wish they earned better returns by holding more stock and fewer bonds in their portfolio.

“Young people often naively hold bonds in the portfolio because they think it provides them with needed diversification,” he says, adding that the ability to work for steady pay and make steady contributions to an investment portfolio over time serves the role bonds would play in the portfolio.

But, please note: This doesn’t mean betting on individual stocks in hopes of beating the market. “While it is possible to have success occasionally timing markets or picking stocks, the probability of slowly and steadily growing your portfolio and allowing compounding to do its work is low,” he says.

How to Correct it: Watson advises following a simple index-based approach to investing, saying parents will have better luck using low-cost, diversified ETFs rather than following the crowd and trying to time markets or hit home-runs through stock picking. And yes, Reddit dads, that includes Gamestop stonks.

The Financial Mistake: Not Teaching Kids Financial Literacy

When kids enter young adulthood, they often struggle with financial concepts. Student loans, credit, and investing are elusive for them. “Many parents regret not teaching their children more about finance,” South Carolina financial advisor and father of three Charles H Thomas III says. “The hesitancy often comes from parents who aren’t sure themselves.”

How to Correct it: It isn’t easy to tell your kids that you don’t know something. But Thomas says sussing out how money, debt and credit works can bring your family close together. “Take it as an opportunity to learn together,” he says. “For example, if a bill comes in the mail, offer to look at it with your child and talk through what makes sense and what doesn’t. It will benefit everyone to talk it through.”

The Financial Mistake: Under-Spending on Life and Disability Insurance

Nobody likes paying for insurance. It’s a drain on your wallet that has no benefit the vast majority of the time. But when emergencies happen, which happens more frequently as you age, the cushion of insurance can make a vital difference for families. Megan Kopka, a North Carolina financial advisor specializing in advising families of children with disabilities, says that not having any or enough disability or life insurance can lead to major regrets. Often with disability comes large medical payments,” she says. “These two insurances are often overlooked or downplayed. In worst case scenarios, that can be the biggest regret.”

How to Correct it: Sign up for life and disability insurance. Pay the policy every month. Complain as much as you want when everything’s fine and pat yourself on the back when everything goes wrong and you were prepared.“If you are not on track for retirement and the kids are older and college isn’t covered then get life insurance in case your household income is decreased by disability or death,” she says.

The Financial Mistake: Prioritizing Kids’ College Over Own Retirement

Believe it or not, putting your kids first can be a huge mistake. Ohio financial planner John Bovard and father of four says his older parent clients frequently realize they erred in supporting their kids too much.

“Often, they were concerned about their kids going to a good school,” Bovard says. They worried about paying their tuition and making sure there wasn’t any student loan debt. And then they come to realize that they probably should have used that money for their own retirement.”

How to Correct it: Student loans are no joke. But college tuition has more flexibility than saving for retirement. “I often tell clients your kids can take student loans out, but you can’t take a retirement loan out,” Bovard says. “It doesn’t exist.” Your kids go to college early in their lives. If all goes well, their education gives them access to higher incomes; they have more time to pay off their student debt than you have to fund your retirement. “You’ve got to make sure you’re checking the boxes on proper retirement savings before extending yourself and helping kids out,” Bovard says.