Delayed gratification. The fact that you can only spend a dollar once. Preventing impulse purchases. One of the most important, but hardest, lessons we need to teach our kids about money is the intangible concepts.
Note – this post was inspired by a question from my friend Revanche from A Gai Shan Life, who asked on Twitter “How do you let [kids] make their own mistakes with money? What’s important for them to learn by doing rather than by following your rules?”. Have your own question about kids and money you’d like me to tackle? Drop me an email at email@example.com.
The easy lessons come when they’re small. What is a penny, dime, quarter, and a dollar – and how much can each of those buy. By the time they’re old enough to have a real job that will result in real spending money, their money philosophy will be pretty well set. According to this Forbes article,
Kobliner says children as young as three years old can grasp financial concepts like saving and spending. And a report by researchers at the University of Cambridge commissioned by the United Kingdom’s Money Advice Service revealed that kids‘money habits are formed by age 7.
Age seven – the age where so many kids still haven’t learned how many quarters are in a dollar. If that’s the case, how could their money habits be formed by that age?
The answer is simple – our money habits aren’t really about money at all. They’re about whether you give into impulse, or have restraint. They’re about whether you think about short-term fun and gratification, or plan for long-term needs. It’s about recognizing that money is something you’re exchanging for your time, or it’s a gift from someone who exchanged their time for that money. And it’s about respecting that each thing you buy means giving up buying something else with that money. You can use it to buy you things, time, or invest it for the future.
How Do You Teach These Things To Kids?
I’ve talked before about using everyday events to teach my kids about money – like school book fairs, and hot air balloon festivals. Oh and lets not forget about our family chopped competition, or using boxes as “not a box” to spark my kids imagination. But I haven’t yet written about how I teach the value of money, time, and delayed gratification.
To be honest I follow a very simple four step process:
- I let my kids spend their money on whatever they want, good – bad – and indifferent
- Note – They do not have a large amount of money at any given point in time. Typically they have their allowance of $2 per week that they save up for large purchases, birthday money, and Christmas money
- I also do not buy them toys and other such fun stuff outside of Christmas, birthdays, and a bit on vacations. All other purchases must come from them. This makes money a very finite resource.
- When I notice that they’ve realized they made a mistake, or when they’ve made a very savvy purchase, we have an age-appropriate conversation about the lesson we can learn from the purchase
- The next time they’re thinking about buying something, I remind them of the prior purchase lessons- good and bad. I don’t (OK, I rarely) tell them “no” they can’t buy something with their own money. Instead I ask them these questions, have them answer the questions, and then let them make their purchase
- Repeat from Step 1.
It’s really important to let your kids make small money mistakes through the years, and use those mistakes to teach them how they can make a wiser decision the next time around. Sounds simple, right? Well there are plenty of parents I don’t see doing that. What do they do instead is usually embody one of a few personalities
- The “Oh Well!!!” Attitude: Let their kid buy whatever they want, and then toss it without comment when it breaks. Or donate it when they outgrow it/they get bored of it. Usually accompanied by “oh well! Kids! (sigh)”
- The Iron Fist: Controls the purchases of their kids with a fist of iron. Constantly tells their kids No, they can’t have this – No, they can’t have that – don’t they know that thing is just going to break??? They don’t let their kids make mistakes, until their kids become adults and make huge mistakes like going on shopping sprees
- Sure, Buy Whatever You Want!: Similar to the “Oh Well” attitude, but makes money seem like an infinite resource. Instead of the kid using their money, the parent uses theirs-and usually the kid becomes bratty rather than appreciative. Money feel infinite, until the kid has to get a job and money becomes very finite. This is how you end up with a 30-something still asking you for money.
By making money a finite resource, letting your kids make mistakes, and helping them to learn to ask themselves important questions, you help to set them up for financial success instead of a rough start to their adult financial life.
What might this look like? Let me tell you a few stories about my older boys.
Harry Potter Wizard Chess
Back when my oldest son, now turning 14 in a few weeks, was eight or nine years old, we went to a mall for some reason I can’t remember any more. We don’t go to the mall very often, so we must have been there for something specific. Anyways, he had about $30 left over from a recent birthday and found something he just had to have – a Harry Potter Wizard Chess set.
There’s something I should tell you about my son-he’s an avid Harry Potter fan. Although he missed out on all the fun of the launches of the original books (because he was born in 2003), he had access to all of them because my husband was also a big fan. He first read the series in the summer before second grade, and regularly re-reads them today. So he knew exactly what wizard chess was, and really wanted this set.
Now, my son has no clue how to play chess. I know how to play but I’m no where near what you would call “good” at it. At age 8/9, he also wasn’t really interested in learning how to play chess. I had tried showing him on a chess set at the library, and he had no interest. So I knew this wasn’t going to be something he really enjoyed.
I asked him a few questions – did he really want to spend all his birthday money on this? Was he going to play with it? Did he realize that if he bought this, he couldn’t buy other things? He of course assured me he knew exactly what he was doing, and I let him get the chess set. And he was really happy!
For about a day.
Because after we got it home, what I predicted came true. He didn’t want to play with it at all. He took the set out, gave it a few tries, and got frustrated. He didn’t find it fun at all.
When I noticed he was feeling glum, I talked to him about it. We discussed how sometimes things look like fun in the store, but when you get them home they’re not really as fun as you think. And how when you buy something, you can’t buy other things that you would like to have more. We also talked about impulse purchases-if you see something and you want it, think about whether you wanted it before. Was this something you’ve been thinking about for a while? If not, you should probably wait and get it later if you still want it. A lot of times, you’ll find that you don’t really want it that much, and you’ll save your money for something better. And if you do still want it, you can usually buy it later.
After that, he made much better decisions with his money. When he would mention he wanted something and I could see it was an impulse purchase, or something he wouldn’t really want in a few weeks, I would remind him about the Harry Potter chess set and he would immediately change his mind. Today he’s a person who’s proud of his bargain shopping abilities (in fact he scored a $40 memory card for $4 and brags about it!) and doesn’t buy on impulse.
My middle son is an entirely different kid. Impulse purchases don’t bother him too much, and lessons take a while to sink in. He used to burn through any gift cards and monetary gifts/allowance as soon as he got them. But when it came to the hoverball, I was finally able to get through an important lesson about buying wisely.
Interestingly this was not really an impulse purchase. My son had seen commercials for this ball while visiting his great-grandma, who had cable (a rare treat since we cut the cord many years ago). After he saw the commercial, he couldn’t stop talking about it. The ball hovered! And you could kick it on carpets! It was just sooooo cool!
Luckily this was originally an “order off the TV” type of product, which he couldn’t do because he doesn’t have a credit card. But then, a few months later, he saw it in Target – and just HAD TO HAVE IT.
Now when he originally talked about it, we had discussed how things on TV seem more fun than they really are. But I don’t think he believed me at all. He happened to have some money from his birthday or an allowance (can’t remember), and bought it. So now he was the proud owner of a hoverball!
Which, just as I predicted, did not work as advertised and really wasn’t that fun. Today all we need to do is mention the hoverball and he’ll cringe, saying to not remind him of the mistake that he made. It totally changed the way he evaluted his purchases, because after he got that he didn’t have any more money. And he knew that buying the hoverball meant that he didn’t have enough for legos or other toys that he did play with.
The Hard Lessons
So what are the lessons they learn through this approach?
- Delayed gratification – they can’t buy something until they’ve saved up their allowance, or waited until their birthday/Christmas
- Impulse purchases – buying on impulse leads to regret
- Don’t believe advertising – It will make the product seem much more fun and awesome than it really is
- Think before you buy – Ask yourself if this is really something you need, or will use a lot.
I Want To Hear From You!
How do you teach your kids some of the more intangible money concepts? I’d love to get some more ideas – share them in the comments!
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