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 liz@chiefmomofficer.org.
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.
Hoverball
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!
Want to learn more about teaching kids about money? Check out this great page with my top articles and resources I’ve found from around the web.
Be sure to follow my blog for more great posts via e-mail or WordPress, or connect with me on Facebook or Twitter and say hello! You can also check out what I’m buying or baking on Instagram, what I’m pinning on Pinterest, or the latest books I’m reading (or want to read) over on Goodreads.
Liz, this sounds so similar to the method we use with our kids to teach them about money. If they want toys, they buy them themselves with allowance or birthday/gifted money. My oldest learned the lessons about spending wisely quickly, and now he generally chooses to put his money in his college fund (okay, I may have to help him not to be too frugal as he grows up!!). My youngest son still blows every dollar he has on Legos. I don’t know when the lesson will be learned, despite many conversations–“Did the Minecraft Treehouse set really change your life like you thought it would, or did you get bored with it after you put it together in a day?” I’m still trying, though, and he is only 7!! 🙂 I find that delayed gratification is key. Sometimes it has involved kicking and screaming with my youngest (he sounds like a gem, right? But he really is!). But we hold firm, because I’m convinced that giving your kids everything they want turns them into human beings who don’t value anything. Love this post!
I’m with you! My 10 year old was a lot like that too, until the Hoverball incident. When he was 7 he was exactly like your son. He still is more impulsive than his older brother (who sounds a lot like your oldest) but I’m proud of his progress. Keep it up and they’ll get the lessons eventually!
I let my daughter buy her own toys, too, although when she set a big goal (a $350 laptop), her dad and I agreed to a 1:1 match to make it doable for her. Four to six months of savings, she can do, especially if I do a weekly countdown for her. A year or more? That was too daunting for a seven-year-old. (Besides, I want her to have the laptop.)
I will say that things seem easier for her right now because she’s more interested in Roblox and Minecraft than toys these days.
We did something similar for my oldest son-back when he was very young he had a big goal of a Lego Death Star. He saved all his birthday and Christmas money for over a year and we had “Santa” chip in the rest. He was so happy and he still plays with it today, almost ten years later.
Many parents need to take responsibility and realize that they are constantly teaching their kids about money. Whether we realize it or not, kids are observing and learning all the time. Kids see our actions, and sometimes we need to explain the decisions behind those actions. Using money wisely is one of the most important lessons kids will learn. Parents need to take it seriously.
This post emphasized that dollars are finite. It is so simple, but many adults don’t seem to get it.
I love how you say that we need to talk to our kids about it-I think that’s really the key. Having more detailed money conversations will help kids to develop the critical thinking and planning skills to deal with money throughout their life. It’s easy to just go through buying or not buying and not explaining what you’re doing and why. By having age-appropriate conversations about money with your kids you’re helping them down the line as adults.
Thanks for tackling the question!
We are working on actually understanding numbers so we can start teaching the basics about money – we’ve had conversations about having to “pay” for things and I get the feeling it’s still too abstract for zir 🙂
I’ve been there, and in fact I’m still there with the little guy. At his age the money lesson is “why we don’t put coins in our mouth.” Right now for him I just make sure to talk out loud about some of the decisions we’re making, or that his brothers are making, so as he understands more these concepts are normal to him.
Whenever I go for shopping I bring my kid too. I think it appropriate because it is a great way to teach some basic shopping rules. I give him advice on spending money.
That’s a great way to teach your kids about money! I also like to have them come shopping with me, and talk to them about what I’m buying (and why)
Great topic! We were similar to you in that money was finite and we did a lot of teaching along the way. My kids were really different though. My daughter hardly spent any money growing up. She was a huge reader and her splurges were usually on books. My son had a much harder time with impulse buying. When he was younger – if wanted something, he had to have it (if he had his own money to buy it.) He’s grown out of that now though. I wondered if it was more of a gender/age issue, but I have two brothers. One still buys whatever he wants – whenever he wants it. And he’s broke. The other early retired at 30….
It is so interesting how kids with the same upbringing and the same parents can turn out so differently. I see that with my boys too, my middle son is much more impulsive than my oldest (but is getting better). I’ve seen improvement over time, so hopefully as he continues to mature he makes better decisions! 😀
Great post. It is the same story at my house , one of my daughter is an impulse buyer while the other will research and think about it before buying. I am just glad I was able to teach them not to spend more than they earn (unlike some of their friends). I also found making the distinction between “need” and “want” at an early age has been really helpful in teaching them the value of money. I never pay for “wants” except for birthdays or Christmas.
Nice to see that others have the same “birthday/Christmas” philosophy when it comes to wants! I’ll always get them the basics but save the fun thing for special occasions. Otherwise I think they kind of lose their specialness, you know?
Great article! I think that for our family, a key thing is to step back and allow them to make mistakes like you suggested. For example, when we go on vacation we typically give our (older) kids a small, fixed amount of money to spend on souvenirs. They don’t have to seek our permission before they spend it, but at the same time we won’t give them more if they run out. We saw this as a great opportunity to teach the kids to be responsible with money, and also keep them from constantly bugging my wife and to buy stuff!
The first time we did that, our youngest (early middle school) blew nearly all of her money at the arcade on the cruise ship we were on, on like the very first day of the cruise. She then got to watch her older sister use her money on tangible things like T-shirts, some braids for her hair, etc. She was so disappointed when she came back home from our trip with nothing to show her friends – she still talks about that experience. That said, she has never done something like that again – that was not an experience she wants to repeat. While that was tough to watch as a parent, she definitely learned her lesson. Better to have an experience like that early.
Another thing our family has done is to pay them for larger, “out of the ordinary” chores. We don’t give our kids weekly allowances, since we think it’s important to have our kinds understand that money generally needs to be earned. We also don’t pay them for basic chores such as cleaning their rooms and keeping up with basic housecleaning, since we see this as just a basic part of their responsibility to our family. However, we do pay our oldest (early high school) to mow the lawn for us each week. It’s a great way to give her a sense of the value of hard work, and it also gives her a source of “pocket money” to use go out with her friends. However, she does save most of it – so proud of her! (Incidentally, she’s like the only kid in our entire neighborhood that does this – everyone else either pays a company to do it, or sometimes they do it themselves. Ugh – what a waste.)
One thing we’re considering is allowing her to get her own debit card, which apparently our bank allows for kids that are over 14 provided I co-sign it for her. I think it would be more secure than carrying around small amounts of cash, and apparently the use of these among students in her high school is growing. On the other hand, I think that this may encourage her to spend more of it rather than saving, since it’s just more abstract that just using cash. Curious to get your feedback on this!
As long as she’s mature enough to handle a debit card, I think it’s a great idea. I know that I got my first debit card/checkbook back at the age of 16, when I got my first job, so 14 sounds like it would be a fine age. My oldest son is turning 14 in just two more days, and I wouldn’t have a problem with him having one. Actually it would be easier for me, because then I could transfer his allowance automatically to his account vs. needing to remember to get cash to pay him. And I think this is the perfect age to teach lessons like spending little amounts over and over make you run out of money faster. Better to learn now than once she has a real job!
And I love that you set up natural consequences for your daughter who blew all her money at the arcade. I do the same thing, and my kids are much better than they used to be about making wise decisions with their money. In fact almost the exact same thing happened when we went on a vacation, I gave my boys spending money, and my middle son blew all his at lightening speed. My older son actually came home with extra money that he used to buy a video game instead. Now my middle son is much better about spreading it out.
While my girls are young (2&4), my husband and I have been talking often about teaching them financial responsibility and the value of money. I’m curious if you have written about your experiences as a child that taught you financial sense. Would you be willing to share any of those lessons? Clearly, they have had an effect on you.
Good question-I’ve mostly written about my experience as a teen and young adult, but not really as a child. I should do that sometime!
Great thoughts about teaching money management to your children. When our children were small, I was fortunate to stumble on to “The First National Bank of Dad” by David Owen, which had some additional great tips. My favorites were paying 5%/month interest and weekly allowances. The first teaches the power of compounding and saving while the second shifts the burdens of needs-verse-wants to the child.
We lived overseas with kid one and seemed to buy her a toy every month or two at each of our rare trips to the US base. She would get whatever first caught her eye and not value it much. After a few such purchases we decided to give her a (similar to what we’d been spending) $ amount and teach her about choosing which toy or item to get, and how a bigger cost one could still be purchased by skipping a purchase this trip. Amazing how seldom she then would actually get things. She had a pretty quick view (not sure her age but before 4 years old) that money in hand is always better than a toy in a bag. We were a little anxious- b’day and Xmas gifts were still on us- at how mercenarily she would eye an item, and then us, and then say “would you buy it for me/ pay the extra above what I have?” But she’d happily accept our refusal, and almost always end up NOT BUYING IT. Now that kid has a good govt job with a pension and a 30+ year life plan. She asked us for 20% her salary when she bought a house a few years back (we gifted it, tho she’d planned to repay) and we are giving her a similar amount toward her wedding- whether she spends $0 on the event or 20 times what we’ve donated. Fun watching her frugalness at war with her sense of hospitality, less so her sense of needing to do what other couples they know have done at their weddings.