How to Raise a Money-Savvy Child

 

Danielle Braff

 

At a time when Internet banking, credit cards and online shopping are the norm, it’s not surprising that kids don’t have the best money habits.

 

Currently, just 1 percent of kids save their allowance, even though 61 percent of parents who give it to them hope they’ll learn about money, according to the American Institute of CPAs.

 

But if children think credit cards are the modern-day equivalent of a magic wand, there are ways to help them gain good spending habits before they swipe their way into debt and it’s too late.

 

1. Delay gratification.

 

“This is a learned behavior,” said Susan Beacham, CEO of Money Savvy Generation, a financial literacy website for kids. “It’s a muscle, and it’s something that gets stronger with use,” Beacham said. A study published in 1972 known as The Marshmallow Experiment, which continues to be referenced today, found that children who can delay their gratification end up with higher SAT scores, lower levels of obesity, better responses to stress, and other positive life skills. Try it in the supermarket checkout line, when your child wants some candy. You can purchase it but not give it to her for a few hours. Or, you can tell your older child that you’re window shopping but won’t be making any purchases that day.

 

2. Discuss needs versus wants.

 

“Try making this into an activity as you shop,” suggested Beth Kobliner, personal finance expert and author of Make Your Kid a Money Genius. Kobliner said to do this at the supermarket: “We might want chocolate milk and veggie sticks, but what do we need?” she said. Correct answer: “regular milk and regular vegetables,” she said. In a store, the child might want a toy but needs a winter coat.

 

It’s also helpful for parents to curb their own habits: Have you ever caught yourself saying, “I need to race over to the Nordstrom anniversary sale?” Your children are listening.

 

3. Use cash.

 

The area of the brain associated with pain is activated when you see a high price, according toStanfordUniversityandCarnegieMellonUniversityresearchers. That’s why subscription services and unlimited usage plans have become so popular. “But, using real bills and coins will make money feel tangible and real – for you and for your child,” Kobliner said. And if it hurts, maybe you’ll both spend less.

 

4. Let your child spend his allowance.

 

You may have a child who wants to spend all of his allowance on gum. “The key with allowance is to be clear and consistent, and after that, a little bit hands-off,” Kobliner said. “Let your child know how much money she’ll be getting, and how often, plus some general guidelines about what she should use it for.”

 

For example, Kobliner said, you may still pay for school clothing, but your child will have to use the allowance to go to the movies. Ground rules about off-limit purchases should also be established. “For some parents, that might extend to nixing a sugary treat-buying bonanza in the first place,” Kobliner said. “But one of the points of allowance is to teach kids about opportunity cost and to let them make mistakes with money that they’ll learn from.”

 

“So, if your child blows all of the allowance on Ring Pops, but later realizes the money could have been saved for a stuffed animal, he will hopefully remember it the next time when walking past the candy counter,” Kobliner said.

 

5. Shop.

 

“While you’re shopping, teach your kids about the importance of comparison shopping and that using coupons can significantly decrease how much you pay for things,” said David Bakke, financial expert at Money Crashers. You’ll gain a mini-couponer and a fantastic shopping partner-in-crime.