Learning about Money Early On
Delayed Gratification or Learning to Impulse Control
In 1970 psychologist Walter Mischel conducted an experiment where he placed a cookie in front of children and gave them a choice:
- They could eat the cookie immediately, or
- They could wait until he returned from a brief errand and then be rewarded with a second.
He found out that only a small number was able to exercise enough self-control to be rewarded with a second cookie. This ability was coined as which was later connected to better performance in school, more success at university and better future jobs (Source: Psychologie Today. The Power of delayed gratification).
Learning about Money - Learning to Control Impulses
The findings stated above tell us a lot about why it is so important to teach kids about money early on and to actually practice impulse control again and again. Children need to learn early on that financial resources are limited and that saving (delaying gratification) helps them to feel rewarded at a later date. This can be practiced early on by giving them an allowance and making sure they understand what is allowed with the funds.
It is important to not help them out when they "really" want something right away. Rather, talking about the necessity of saving and letting them experience the gradually increasing savings amount will be a much better lesson. Some people give their children a certain amount but ask them to put half into savings right away. This is a very helpful tactic to introduce automatic savings right from the get-go.
Teenagers and Money
What teenagers should learn
The older your kids become the more complex aspects around money they need to learn:
- Loans and Interest - at some point. We hear about kids at school practicing it sometimes with knowing the math behind it. A small loan with a partial repayment is a good way to teach them.
- Wise Spending - They can't have everything they want. They have to make decisions. They will have to focus on one thing at a time and buy at a good price and get good value. That way they will get more things with their savings.
- Credit Cards - how it works, paying cycle and how credit card companies make their money.
- Budgeting - even simple math on paper can provide basic knowledge about savings, expenses and earnings.
- Costs - some costs are fixed (bus to school) some are variable (clothes) and some are discretionary (entertainment) - fixed are most important and discretionary are least important
- Piggy banks & Savings - let your children know each coin is valuable. Saving small changes in a piggy bank or even part of your allowance will help them realize the importance of saving money.
Tips to solve common money issues with teens
Increase Usage of Things to Keep Costs Down
When buying things for teens they usually don't understand the real need to get good use of the items. Wise spending can sometimes mean buying things on sale and buying better quality, which in turn, equals longer-lasting items. Teenagers are usually not aware that you can avoid new expenses if you're looking after your things. Jeans get ripped and new ones are needed so quickly. They get shoes and don't think to keep them in good shape. A strategy may be to tell them that if they last a long time then they get a bonus. If the jeans last all year (or whatever time frame desired) they get a gift, something small, inexpensive but desired.
Set Clear Financial Boundaries
Teenagers today are going to be somewhat different from past generations. Not vastly different but different. In fact, there is a whole new category of expenses attached to people, particularly teens. The computer age has spawned downloading, apps, extra gadgets, mobile phones. It is necessary to look closely at the budget regarding this issue because most teens look to their parents to pay for most of these costs.
Give them Financial Tools to Thrive
They will still have to get some money from parents and will still have to budget but they can be in much greater control of funds than ever before. With a phone or watch or whatever, they can be in immediate touch with their bank accounts. They still need to understand how to space out expenses in order to have funds at all times vs running out of funds all of the time and asking for more money. Therefore, teenagers still need to understand how to control their spending. This means having patience and teaching ability to make sure the teenager understands not only how to spend wisely but how to save.
If savings actually get significant enough, put some savings into a GIC or ETF to get the teenagers to learn a bit about investing (for long term savings only). It must be with teens that want to learn though.