How do we decide how we spend our money? Most of us have trouble answering this question. How are we teaching our children then? Well, they watch what we do, and interpret our actions, correctly or incorrectly. If we don’t deliberately teach financial literacy, our kids may end up with a tangle of patterns as adults.
5 Financial Values*
You’ll have many chances to practice this one and it’s never to late to start. Younger children can hear “not this time” when they pick up items while shopping or in line at the grocery store. Conversations with older children will take a different form, especially if they haven’t heard ‘no’ often. ‘No’ with an explanation helps them develop a process for making decision. For example, when a child asks for a new phone, you can explain why you’re not buying them a new phone the day they ask for one. The explanation can be as broad as “we’re making some changes in how we manage our money for the family, and I’m not going to put that amount towards a phone for you right now”.
- Differentiate between Needs and Wants
This can be a tough distinction, but it’s important. Use the chart from last week’s blog to help you sort your expenses into the pie chart. If you have some amount left over in the “live” section, you have room for wants. Wants need to be prioritized, as all of us run to end of our money at some point. Allowance can be helpful for kids to differentiate – give a monthly amount that must cover some needs and leaves something left over for wants. “Your allowance needs to cover your clothes (except shoes, coats and boots). You can decide how to divide the rest between eating out for lunch, movies and other things that you may want to do.”
- Tolerate Delayed Gratification
Advertisers would have us believe that delayed gratification is a phrase from a previous generation. This skill is key to many successful adult behaviours- I don’t know anyone who has completed a course of education without delayed gratification. If you give an allowance, talk to your child about saving for larger purchases. For older children, when allowance must cover some needs and needs, wants may have a wait a few months to accumulate the money for the purchase. This is a good chance for the child to evaluate how much they want the item; they may forget all about it, or decide that another experience/purchase is more valuable to them.
None of us can have everything at one time, we all make tradeoffs. Tell your children about some of your tradeoffs- “We went out for dinner last week, this weekend we’ll choose a movie from Netflix instead of going to the theatre.” Verbalizing makes it clear that you are making decisions, otherwise children just see a string of events. It’s okay to talk to kids about spending decisions that you wish you hadn’t made. They don’t need gory details on what you may have done, generalities and a solution are enough to teach the values.
“We had a collision of expenses last month, and I need to spend less on (insert a discretionary spending area for you here) this month.”
“I loved this sweater in the store and I was so sure that it was really important to me to own it. Now that it’s here, I realize I could have used the money for other things that would have been more meaningful to me.”
- Develop a Healthy Skepticism
Watch commercials and other forms of advertising with your kids. Ask questions, listen to what they think of the promises and product portrayal. Remind them that an advertisement’s only goal is for you to purchase the product, not to make your life better. Teach them to put new information in the context of their current situation and priorities.
“I’ve already spent money on a Lego set this month, and I wanted to go to a movie with my friends next weekend. If I buy this new thing now, how will I pay for the movie?”
Pulling financial transactions into a conscious decision-making arena helps adults and children use money as a tool to meet goals instead of being controlled by our purchasing patterns.
* Kids, Wealth and Consequences by Richard A. Morris and Jayne A. Pearl. 2010 Bloomberg Press