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Of Babies and Bucks

posted by Katie Porter

The Credit Slips bloggers are engaged in a virtual enterprise, which means we sometimes don't see each other for a long time. One of my fellow bloggers recently asked "What's up?" and learned that I had a new baby three months ago. That experience, along with trying to stem the tide of "I want it! I need it!" that comes with having two preschoolers during the holidays, has left me thinking about how we teach children about money, debt, and consumerism.

There apparently is very little research on financial education for children ages 2-7. Chapter 3 in Consumer Knowledge and Financial Decisions (ed. Douglas Lamdin; Springer 2012), explores the relationship between cognitive development and children's understanding of personal finance. I found its identification of the key concepts of personal finance for young children helpful. They list:  numbers, time, income, markets and exchange, institutions, and choice. They also explore how some concepts emphasized in young children, for example being "nice" or "fair", are hard to square with the idea of a financial transaction as a matter of price and market conditions. For me personally, this explained a great deal of the reasons that the Monopoly board game has for generations resulted in children in families fighting with each other!

The Wall Street Journal had a recent article that reviewed several money games for kids. Disney, Visa, and several other companies have online games that aim to teach money skills. They include fun gimicks like the "inflation wolf." Even Sesame Street has ventured into financial education for young children, as shown in this clip reviewed by PBS. My oldest son's kindergarten class requires the children to "price" the daily snack they brought for the class. All the kids have a stock of coins that they use each day to "purchase" the snack. My little financial wizard Luke has priced his snack every time at 10 cents--for 7 months now! (I think we can rule out a career as a corporate finance  lawyer at Wachtell for the little guy).

I know in my house we aren't going to do allowances or paying for grades. But I haven't gotten much further than this as a way of showing the value of a credit card. Suggestions welcome! What strategies have you used in teaching your children about financial concepts? What did your parents do that worked or did not work?


OK, I'll bite.

When my sister and I were young (7 and 10), our parents' bank was giving away "pretend checkbooks", which my Mother brought home one day for us. Instead of giving us our $1 and $2 per week allowance in cash, she had us enter the amount as a "deposit" into our "Bank of Mom" checkbook register. When we wanted to use some of our allowance, we wrote her a check and she gave us the cash. We used that method until I was well into high school and had my first job. I still credit that "pretend banking" as one of the key reasons I never had a problem balancing a checkbook as an adult, so I made my own "Bank of Mom and Dad" checkbooks for my 3 kids when they were old enough, too. (They each get $5 a week.)

One of the best parts about using these checkbooks is seeing what kind of "savers" or "spenders" they are becoming, what they value, and how their judgement evolves.

My middle (13) is just like I was at her age- she will only write a check once every 4-6 months, and she does so with a glimmer in her eye as she watches me confirm that she does indeed have about $100 coming to her. She likes to use her windfall to take friends to dinner and movies at the mall and rarely uses it to buy something for herself.

My oldest (15) regularly writes a check every two weeks and goes out with friends to the movies - they choose the second run theatres or matinees so they can get popcorn and soda, too. He offsets his regular spending by depositing all of the money he earns as a youth soccer referee into his savings account (a real one). "I'll need that for college," he says.

My youngest has yet to have written a check because she says she is "saving for something big", but hasn't yet decided what it is. She is the only one who has asked me why the "Bank of Mom and Dad" doesn't pay her interest.

In our house allowance is not a payment in exchange for doing your chores or getting good grades, but keeping up with your assigned chores and earning good grades demonstrate that you are old enough to earn an allowance and responsible enough to decide for yourself how you want to spend it. That's been one of the hardest lesson for us as parents- letting our kids blow their allowance on things that we consider frivolous or poorly made. But we've found that giving them this freedom has taught them the value of their money, how to distinguish wants from needs, and how to judge the quality and usefulness of what they are buying.

I think that's a bargain of an education for only $5 a week.

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