How do you go about teaching kids money skills so that they have a healthy relationship with their finances? Ask most parents this, and they’ll mention role-playing games to teach kids about money concepts like buying, saving and sharing, or the basic ability to count. Some reference the time-tested piggy bank or allowance. Others, with older children, might whip out a debit card with their kid’s name on it.
These are all good approaches to teaching kids money skills, but they’re nothing without a few broader life lessons underpinning them. Read on to learn about the abilities that will enable today’s toddler – that is, tomorrow’s teenager-with-school-debt – to get more out of life.
Teaching kids money skills: Delaying gratification
The ability to resist short-term gratification in order to satisfy a long-term goal is the cornerstone of teaching kids to save money. And, according to one famous study, general success in life: Children who delayed gratification in the famous Marshmallow Test at Stanford University in the 1960s were found, years later, to be more grounded than those who hadn’t, with better SAT scores, better health, less addiction, and more resilient attitudes towards failure.
Those who weren’t able to delay gratification, i.e., they ate the marshmallow immediately, hadn’t been taught “to think of consequences and … set behavioural goals from the beginning. These behavioural goals are as important as nutritional or academic goals,” says Gayathri Ananth, a master practitioner of neuro-linguistic programming — an approach to communication, personal development, and psychotherapy – who counsels children and adolescents.
Tip: When your child asks for something, ask him to decide if it is a ‘want’ or a ‘need.’ Assuming you agree, help him procure the ‘need’ in a timely fashion. However, if it’s a ‘want,’ help your child make a plan to save up for it, either with your money or theirs, and purchase it at a later date.
Teaching kids money skills: Evaluating risk, return
Kids are often discouraged from risky behaviour automatically. We mean to protect them, but the truth is risk is a part of life. Enabling kids to identify risk – and evaluate return – is perhaps a better path for parents, particularly when it comes to money management for kids. The concept is at the forefront of most financial curricula for kids, the idea being to help them understand the difference between taking a gamble and grabbing hold of an opportunity. And grasping this from a young age – even with lots of trial and error – sets a lifelong, considered approach to finances. From deciding what and when they purchase something, to where – and even if – they go to college, knowing how to judge risk and return will help kids get more out of life.
Tip: Get children accustomed to evaluating risk by giving them choices and allowing them to take small decisions. For example, if your child wants a toy that costs Rs. 2,000, offer her one big toy for Rs. 2,000 or many small toys for the same amount. Help her think through possible consequences of each option: Many toys means she won’t get bored — but if they’re cheaper, they may break more easily or be less exciting.
Teaching kids money skills: Dealing with disappointment
A consequence of risk-taking is often disappointment. A child’s ability to deal with that disappointment lays the groundwork for a healthy financial outlook. Hushing up family debts, financial problems, bankruptcy or professional failure can foster negative associations and uncertainty, rather than practical action, when they face setbacks in the future.
“Today, if you ask a 5-year-old where money comes from, he or she will say that it comes from an ATM,” Ananth says. “We are not open about the struggles involved in getting money and that it can be lost as easily as it can be earned.”
Tip: Financial and professional failures are part of life; discuss yours with your children openly and without shame. And introduce your child to disappointment in a healthy way by setting and enforcing limits, Ananth says. These limits can be set early and simply.
Teaching kids money skills: Following an ethical code
In life, our money choices are often tangled up with broader ethical questions – Do I buy a more expensive, but ethically made product? Do I make this lucrative investment in a company with questionable practices? Like risk, ethical decision-making is often about examining potential consequences.
It’s not the result of a one-time conversation, writes Rushworth Kidder, founder of the Institute of Global Ethics and author of Good Kids, Tough Choices: How Parents Can Help Their Children. Teaching kids money skills that are ethical requires many discussions and experiences throughout childhood to help them exercise that code, much like flexing a muscle. Learning how to reflect on what he supports – and doesn’t support – will help him make carefully considered decisions in all aspects of life, not just the money-related ones.
Tip: Look up the labour and retail policies of some of your child’s favourite brands and discuss whether he agrees with them. If he doesn’t, discuss whether the pleasure he gets out of that item is worth supporting practices he thinks are wrong. What is right and wrong is subjective; the point is to let your child arrive at his own conclusions and compare them to his beliefs. Asking questions like “Why do you think that’s wrong?” can help him through the process without influencing him.