Christy: I understand the Shine Bright Kids books partly came as a result of your experiences (as a Certified Financial Planner) in putting together a financial literacy program for first and second graders in the Atlanta Public Schools. Since little actual currency (bills and coins) is exchanged now in our credit-card, electronic account world, how has this affected our children’s understanding of the cost of things and decisions regarding spending? Teaching children about money early on is important, but how do we do it?
I often wonder what will happen when our children go out into the world and find out that money is not available “on demand.” In our fast-paced, instant gratification, consumer-driven culture, it has become increasingly difficult for children to understand the value of money.
Rare Use of “Real” Money
Who can blame them? They’re not growing up with money in the same way that all of us did, i.e., physically collecting, holding and making purchases with dollars and cents. When was the last time you paid for something with cash or even a check? The majority of purchases in the United States are now made with plastic and the trend is set to continue.
In fact many retailers, including major airlines, don’t even accept cash any more. Research shows that using plastic encourages spending, so what does this mean for the next generation? How will our kids learn to become successful managers of money when they rarely come into physical contact with it?
Even with recent economic difficulties, our American consumer habits and obsession with new products (think of your average suburban home) make it difficult for many children to have a realistic view of money. On a daily basis, we are bombarded by messages that we deserve to have exactly what we want NOW. There is a major disconnect between the access to so much and the hard work, sacrifice, self discipline and responsibility required to sustain certain lifestyles.
For many of us, if we need something, we drive to the closest store (or even more convenient, go online), find it, and pay for it with a plastic card. What message does this send our children? As adults, we appreciate the concept of limits and “affordability” and know that sometimes we have to be patient or simply say ‘no.’ Each of our choices comes with a consequence and a trade-off. But are we teaching this to our children?
“Paying For” is Changing
Money has traditionally provided some of our earliest lessons in “give and take.” Do you remember the first time you emptied your piggy bank (or other wallet) and purchased something you really wanted? Perhaps you had been saving for weeks or months? Hopefully once you obtained the desired item, the excitement and perceived benefits outweighed the loss associated with handing over your hard-earned cash.
Reflecting on these experiences, there is an important distinction to make between physical money transactions and the “cashless” transactions children observe now. The physical act of handing over the dollars and coins had an immediate emotional and psychological impact that allowed us to gain a deeper appreciation of the true value of money and provided a context for our first notions of cost and reward. This doesn’t happen in today’s digital age. The entire concept of “paying for” is changing literally and figuratively. Our children consume, receive and accumulate without experiencing any loss or putting forth of effort.
Creating Teachable Moments
When it comes to kids and money, Prospect Theory and Behavioral Economics present an interesting opportunity for creating everyday teachable moments. Kahneman and Tversky’s research indicates that, when faced with a choice, a perceived loss is more painful than a gain. As a parent, I’ve found this never to be truer. If we want to encourage your children to take responsibility, it is much more effective to take AWAY than to GIVE.
For example, we frequently use a point system. Instead of starting at zero, we start them at ten with the potential to earn up to twenty points. With “skin in the game,” having points taken away is a great motivator. This approach works well with an allowance. Consider paying the week’s allowance (or month’s for older children) upfront in dollar and cents and then as chores and responsibilities are not completed, take away some money. Instead of feeling entitled to simply receive more, children are motivated to work and earn.
Needs versus Wants
To encourage good money habits, talk to you children about the things that matter most. Help them write down specific money goals and determine a strategy and a realistic plan for reaching their goal. Great joy (and pride!) comes from achieving a goal that required hard work, patience and discipline. Explain the difference between needs and wants. Try dividing their money into three containers: Saving, Giving and Spending. As an incentive, consider matching your children’s amounts in the “Saving” and “Giving” jar but let them know they’re on their own with “Spending.” Allow them to make age-appropriate choices, and resist the urge to help them out if they make a bad choice.
Get Them Involved
The next time you’re out shopping with the kids, involve them in your decision-making process. Point out the prices of items and talk about the pros and cons of one compared to another (this is also a great way to teach basic math!). Challenge your kids to look for coupons and special offers and then talk about what makes the most sense for your family.
Keeping a budget should be a family affair; it can become fun! (Make a game of completing the grocery list and staying under a certain dollar amount, let kids take turns guessing the costs of certain items or offer a prize to the child who finds the best deal of the week).
Take your children to the local bank and explain how money is deposited directly into your account and is then transferred electronically. Let them insert checks or cash into the ATM. Set up a savings account and log in to check your balance together before and after you make a purchase.
The digital age presents new challenges for teaching our kids about money, but also provides exciting opportunities. In the words of my late uncle, Zig Ziglar, “Money isn’t everything but it ranks right up there with oxygen.” In short, money matters a lot. Let’s be creative and intentional in finding new ways to help our kids learn to make better financial choices. People who make good decisions about money tend to make good decisions about life!