By Jeff Eusebio
"But why do I have to wait two weeks?" said my 12 year old son. 'O, come on, please! I really want it and I won't want anything else for a long time!" This was almost a weekly ritual in my house as my son would look through the Sunday ads for good "deals." We had tried many things, including a mandatory two week waiting period, but nothing seemed to really help.
This is why we created FamilyMint, and within it we built a system of goals and delayed gratification that changed my kids' habits once and for all. In the process, through our own families and users of FamilyMint, we have learned what works. Here are my top 10 tips:
- "What we need to learn we learn by doing." - Aristotle. Experts say there are three learning styles-listening, seeing, and experiencing-but all of them are reinforced by doing what we learned over time. Children learn by doing, so don't do for your kids what they can do for themselves.
- Personal responsibility is key. Give kids responsibility to manage a particular expense category with their allowance (such as entertainment). Through this they will experience what it means to have a budget, plan ahead, and take ownership for decisions.
- Start early. Most financial literacy education is provided in high school, if provided at all. This is too late. A 5 or 6 year old can pick up the basics of money and we've seen them thrive first hand when given the opportunity to manage their own money.
- Set goals. This is fundamental to getting a child comfortable with delayed gratification. Whining for things is replaced by a new conversation: "You want that iPod? Sure...just create a goal for it and you can buy it once that goal is reached."
- Don't spend it until you have it. This was the societal norm prior to the advent of easy credit and ties in well with tip #4. Money gets more people into trouble because it's not looked at as a limited resource. "If I have credit, I can get it." Waiting until you can pay for a purchase outright is a good habit to start forming early, because the credit habit can be very hard to break.
- Pay yourself first. This popular saying is easy to remember but can be hard to put into practice. Make it a natural instinct for kids by having them save a portion of every dollar they receive for long term goals. Elizabeth Warren, selected by President Obama for the new Consumer Financial Protection Bureau, wrote a book called All Your Worth in which she suggested a 50/30/20 distribution. 50% of your money should go to needs, 30% to wants, and 20% to long term savings. This can be done manually by kids using envelopes or 3-walled piggybanks, or automatically with the FamilyMint Savings Plan.
- Motivate to save. Incentives are a great means of motivation and driving behavior. Interest rates, although not very motivating today at < 1%, provide incentive to keep your money in an account. Companies match their employees 401K contributions to encourage saving for their retirement. Parents can do both of these with their own children by providing motivating interest payments so kids can learn about the time value of money and by matching their kids deposits towards long term savings goals like college. FamilyMint is designed to allow parents do both of these easily and conveniently.
- Create teachable moments. Kids learn many of their money habits from their parents. Parents just need to know the basics to set the right foundation for their kids, including the importance of savings and setting goals. Parents can help create teachable moments by pulling their kids into their own money-related conversations or perhaps letting them help pay the bills. Even if it's just opening the envelopes at first, kids can actually enjoy this! The key is letting kids know there are obligations that must be met on a monthly basis as well as unplanned events that need to be budgeted for. Open a youth savings account and walk through the statements together when they arrive. A few weeks after your kids make a purchase, ask them how they feel about the purchase now. This will help them reflect on their own behaviors and alter course down the road.
- Let mistakes happen. Mistakes are teaching and learning opportunities. Let them happen. Your child may learn a much better lesson from spending their own money on something unnecessary than you telling them it would be a waste of money. It's also much better to let mistakes happen when they are young and the impact is smaller.
- Don't be a money tree. End the Age of Entitlement at your house. Find ways for kids to work for money. It's good for them! I've told my kids to find something around the house that needs to be done and then make me an offer. When they have worked for their own money they will think much longer before handing over their cash for a purchase.
Motivate and encourage kids to build financial skills and habits. These skills and habits will serve kids the rest of their lives. Soon you'll have confident, money-smart kids!