This is the second article of three highlighting a few lessons from the book, Make Your Kid A Money Genius (even if you’re not) by Beth Kobliner.
Do you know about the famous Marshmallow Test?
In this Stanford research study, 4-6 year olds were each given a marshmallow and told if they did not eat it and could wait 15 minutes, they could get a second one at that time. Some children ate the one marshmallow immediately and about a third were able to wait the full time and get the extra marshmallow later. The researchers tracked these children and found that those who were able to wait for the second marshmallow were much more successful in life. They had better SAT scores, higher levels of education and better relationships too.
This is important with regards to what we want to teach our children – about money, but also about other things too. The good news is that you CAN teach your children to wait.
All children (heck, all of us) want things. Your job as a parent is to teach them to wait – that they can’t have everything they want right now.
Scientists estimate that only one third of our ability to save is genetic. So we have the ability to greatly influence our children’s ability to save and delay gratification.
Kobliner gives 6 Tricks to teach your children to “Wait, Save, and Get What they Want”. I am not going to list them all here but I’ll give you my take on the overall techniques:
Have a Plan – When you are going into a store, communicate to your children what you are buying and be clear, nothing else. If they see something that they want, they can buy it either with their own money or put it on the birthday or holiday wish list. Having a plan ahead and communicating the plan a head of time will help.
As part of that plan, be prepared – have distractions ready ahead of time – a story, a joke, sing a song, a special secret to share. Some of the children who did well with the marshmallow test started singing a song to help them pass the time or covered their eyes so they did not have to see the treat.
Create habits that they can count on – make savings automatic. Any time your child receives cash, a certain amount must go into savings. I also like a certain amount going to charity.
Also, build in consistent fun splurges so there is something they can count on, but within a known limit. Our boys know we generally go out to eat once a week. They can choose a different meal (i.e. lunch or dinner), but they know if we go out we won’t be doing it again until the next week.
Today I will focus on the key takeaways for helping preschool and elementary school children save money since that is where my boys are and it is one of the most important lessons.
Preschool Children
For this age group, Kobliner recommends reinforcing that waiting is a fact of life. Everyone has to do it. You can come up with and teach ways to try and make it more enjoyable.
Have children save their money in a safe place.
I was always taught and she also recommends having 3 opaque labeled jars –
- Savings (for things to buy in the future)
- Spending (can be used to buy things now)
- Giving (to help others).
She says that how you divide it between the pots doesn’t really matter at this age, you just want to be consistent. You can do a third, a third, a third, or half in spending and then 25% into savings and giving. I think the 50/25/25 is easier to maintain going forward and more reflective of real life. This is all about creating the habit that money goes towards these three areas automatically.
She also recommends a “Family Savings Pot”. Set up a container to save money towards a family goal that is easily attainable and wanted by your child – pizza night or a trip to a water park.
Everyone should contribute to the goal. Have them help you count the money occasionally to see how close you are to the goal. When it is time to cash in on the goal, have them help with some of the choices, what toppings on the pizza or do we have enough to go for ice cream too etc.
The importance of follow through! As a parent you must keep your word to your children. No one is perfect but realize the importance and significance of your word and how this can affect your children’s behavior and ability to save. You need to build this trust so that they know what to expect. Studies have shown that children with “reliable” parents were much better at waiting and saving.
Elementary School Children
Think about and Teach “Opportunity Costs”
There is a limit to everything. Teach your children about choices you make and allow them to make some choices on their own.
The author gave an example of a mom who bought her son a bag of chips each day after school from the market on their walk home. He really wanted a set of toy airplanes that cost $15. They made a deal that for three weeks he would not get the chips and would eat the homemade peanut butter crackers that she made instead so he could get the toy he wanted.
Interest is “Free” Money
Talk about how money saved can earn “free” money. To help your children see and feel the power of this lesson more quickly (if you can afford it), you may want to give your child matching funds to encourage them to save more. Similar in concept to the company match in your 401k. Be clear on the rules and set a cap and be sure to follow through on what you promise.
This may sound obvious, but I know I have done it. Don’t rip off your kid’s piggy bank. If you do, you MUST be good about putting the money back. You do not want to break their trust and teach your children the wrong lessons – that your savings can disappear. This will not motivate them to save going forward.
I hope this gives you some things to think about and possibly try with your young children. Please let me know what you think and if you have any comments or recommendations you would like to add.
In next week’s article I will talk about the dos and don’ts of allowance.
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