Kids and Money – Part 1
I have three sons, ages 8, 6, and 4. Long ago, my wife and I agreed on trying to impart to them sound building blocks for their future. Like most parents, we want polite, well mannered kids that have good study habits, play sports, go to college, etc. Another important aspect (since it just happens to be my vocation) is the understanding of personal finance and making sound decisions about money. I truly think that a curriculum of personal finance is lacking from our kid’s middle and high school educations, and needs to be addressed. However, parents can start that education at an even younger age than middle school. One of my favorite writers , Jonathan Clements of the Wall Street Journal, recently wrote about trying four financial tricks to make kids money savvy and I think the ideas are worth repeating.
1) Try to get them out of the habit of the immediate gratification of a dollar today. Let’s say you give your kids $5 a week in pocket money. When the next time comes around to fork over their allowance, offer them a choice: They can have the usual $5 right away – or they can have $7 (40% more), if they’re willing to wait a week. You can probably guess that the immediate gratification is taking the $5 up front – this gives parents a great venue to explain the value of waiting for the $7.
2) Slow down spending by giving them larger denominations. You will likely find that kids are more inclined to spend five $1 bills than they are to spend a single $5 bill. By the way, adults do this too. Research has found that people are less inclined to spend if they had say, a $50 bill rather than ten $5 bills, and it has been proven time and again that we are more careful with our spending, if we are paying with cold cash as opposed to a credit card.
3) Make a wish list to deter impulse purchases. When your child wants something, add it to his wish list. Let a few days or even a couple of weeks go by and go over the list with your kids. You probably wouldn’t be surprised to learn that they sometimes can’t even remember what it was they wanted.
4) Let your kids keep the change. If you give your kids $5, tell them they can buy something and that you want the change back – chances are they’re going to spend the entire $5 (or as close to it as they can get). Instead, try giving them the $5 and tell them they can keep the change. Often you’ll see them end up with the entire $5 unspent. Again, this gives a parent another venue to discuss money and how best to handle it