By Donna Freedman — Jan 7, 2020
This article originally appeared in Fabric.
In the famous “marshmallow experiments” of the early 1970s, researchers at Stanford University gave preschoolers a choice: Eat one marshmallow now, or wait 15 minutes and you’ll get twomarshmallows. (Spoiler alert: More than half of them couldn’t wait.)
You might be thinking, “Ha! My kids wouldn’t last 15 seconds!”
That’s totally normal. Take it from Sigmund Freud: Your kid is driven by id. When kiddo sees that new brand of cereal or an awesome Lego playset, the rest of the world ceases to exist. The craving must be satisfied. Now.
As parents, we need to teach our kids to tame their impulses—and not just because it’s annoying when they keep pleading for more Legos. It’s to help them become competent, successful humans, rather than little gremlins driven solely by their desires.
Learning to control our immediate impulses means the ability to pause and figure out whether a purchase is really worthwhile. Taming that id also helps us understand that we can have (almost) anything we want, but we can’t have everything we want.
Teaching your kid to tame that voice that says now-now-now is important, as long as the lessons are age-appropriate and consistent. Certified Financial Planner Tara Tussing Unverzagt calls this “a series of practice decisions.”
Here are some ways to pull it off.
1. Give Kids Their Own Money
One of the most fundamental ways to teach a kid how to make smart decisions is to actually let them make decisions. Often, this means encouraging your kid to manage their own money . . . within a parent-defined framework.
Unverzagt used the “three jars” concept with her kids, splitting the funds among saving, spending and giving categories. “I was surprised how quickly they learned to save for what they wanted,” says the financial planner, who’s based in Torrance, California.
If you have older kids, you might give them a debit card. Two years ago, retail expert Trae Bodge started a bank account for her 11-year-old’s allowance and gift money. While Bodge takes care of necessities (clothes, new shoes), her daughter is responsible for buying everything else. “She has to make very thoughtful decisions. And sometimes that means she has to wait for things,” Bodge says.
If you want a higher level of control, companies like Greenlight, gohenryand FamZoo say that their cards let adults observe and guide their children’s spending. Parents can create a virtual three-jar setup or specify a percentage of money to go to charity. They can also set limits on withdrawals or the types of places where the cards can be used (for example, ATMs and stores but not online). FamZoo and Greenlight let parents opt to pay “interest” on their children’s accounts, to incentivize saving.
Unverzagt notes that she doesn’t think kids younger than 10 should have debit cards. First teach them what money is—how it’s earned, how it’s spent—and gradually introduce the idea of cards.
2. Help Them Learn From Their Successes and Failures
No bailouts, ever. Unverzagt suggests a hands-off approach to letting kids manage their own money. Instead of, say, setting a “no more than $5 per day” boundary, let your kid figure things out on his own. Suppose he spends everything on the first day before finding out his friends are going to the movies on Saturday. Guess he’s staying home.
“Let them make those mistakes,” she says.
Fabric’s editor-in-chief Allison Kade remembers when she forgot her lunch in elementary school and her mom refused to bring it to her: “It seemed pretty hardcore at the time, but you can be sure that I never forgot my lunch again.” In the end, forcing her to own up to her own mistakes changed her behavior over the long haul.
Celebrate successes, too. Let your kids know that you’re aware of how tough it can be to resist all those bright and shiny objects in the store in order to get that one toy they actually wanted.
3. Do the Math Together
Personal finance writer and author Emily Guy Birken has two sons, ages 6 and 9. Each one has not just a piggy bank but also a physical ledger for keeping track of money.
“We’re hoping that the combination of the loss of physical money in their bank and the numbers in their ledger getting small will help them recognize that money is a finite resource,” Birken says.
Her older son seems to be catching on. His school created a book of student poems and made it available for sale. When Birken asked whether he wanted a copy, his first question was if they’d get it for him or whether he had to pay for it.
Incidentally: He has $300 in his piggy bank.
4. Make It a Rule: No More Getting Anything for Free
Personal finance blogger J. Money likes to visit garage sales with two of his kids. The boys, ages 5 and 7, would often get free stuff as a gift from the garage sale host, or they’d pluck items from the “free” box.
In an effort to make them more discerning and to avoid piling up junk, he implemented a rule: “No more getting anything for free.”
Now, even if they find something in a box labeled “free,” they have to offer some kind of payment to the garage sale host. This forces them to engage in their own version of cost-benefit analysis—is that object worth paying real money for?
Indeed, learning how to say no to kids is one of the most important skills a parent can have.
5. Teach Them ‘the Pause’
When personal finance writer and author Cameron Huddlestoncontributed to a school fundraiser, her 8-year-old asked her to give more so he could “win” a prize. She said no—it isn’t really “winning” if your parent buys it.
She told him he could buy the prize for himself online, with his own money. But first, he’d have to wait a week to make sure he still wanted it. For two days in a row, he reminded her just how much he wanted the toy. Then he forgot all about it, and the money stayed in his piggy bank.
This technique is also very effective for adults: Give yourself a cool-off period of a week to see if your desire for that newest tech gadget or kitchen appliance continues to burn bright. Modeling this behavior shows kids that grownups also have that voice demanding buy this now! but part of being an adult is learning how to take a breath and make a calm decision.
6. Put Your Money on the Table . . . Literally
If your kids don’t understand that you have bills to pay, try this: As an exercise, cash your paycheck instead of depositing it right away, and spread the money out on a table.
Let your kids get an eyeful: Wow, we’re RICH!
Then start subtracting. “We need X dollars a month for rent/mortgage,” and take that much away. “We need X dollars a month for our car payment, gas and insurance,” and take that away. “We need X dollars a month for our emergency fund…” and so on and so on.
The idea isn’t to get them worried about how their family’s financial wellbeing, but to reinforce money lessons:
- It’s important to budget for commitments (monthly expenses, saving, giving) before buying fun stuff.
- Make sure your expenses don’t exceed your income.
- Since expenses can vary, it’s important to have an emergency fund.
“Showing that you are in control and have choices is a powerful message to send,” Unverzagt says.
7. Start Thinking Long-Term, Early
It’s human nature to prioritize short-term wins over the long-term slog toward prosperity, but we all know that focusing exclusively on today will have negative effects when we finally reach tomorrow.
So, one way to teach your kids the importance of very long-term thinking—and to actually give them a leg up on getting there—is to start them off saving for retirement now, while they’re still kids. Yup, it’s super early. But since children have a much longer time horizon, they have many years to build wealth. Plus, watching their accounts grow teaches them to think about and save for the future.
Here’s how: If your child has a source of taxable income (that includes things like babysitting or mowing lawns), then they can have a Roth IRA. This kind of account has the same benefit for kids as it does for adults: tax-free growth.
If you want, you can choose to contribute to the Roth on their behalf, as long as it doesn’t exceed the annual maximum. (For minors, that’s $6,000 or their total earnings, whichever is less.)
Certified Financial Planner Kimberly Foss started a Roth IRA for her 4-year-old son, Jack, who was being paid to do chores at her business: emptying wastebaskets, dusting, vacuuming, shredding documents.
“He thought it was cool that he could earn real money, and even cooler that the money could grow all by itself, without him having to add to it,” says Foss, founder of Empyrion Wealth Management in Roseville, California.
Bonus: Pre-retirement withdrawals can be made penalty-free under certain circumstances, including paying for school or buying a home. Jack, now 15, has his eye on both. “After watching his older sister and brother go into debt, he’s really eager to keep his education as debt-free as possible,” Foss says.
The Bottom Line
Parenthood is about loving our kids, but it’s also about teaching them to (eventually) leave us. That means learning how to take care of themselves.
A crucial life skill is knowing how to handle money—and sometimes that means knowing how to not spend it. This isn’t an easy lesson, so you need to model it consistently. If you don’t, your kids might grow up thinking that debt is both normal and inevitable.
Delayed gratification is a key component of financial independence. And, possibly, to bigger and better Lego sets.