Kids and money: Give them opportunities to goof it up

Kids and money. Will they ever learn? Parents, most of whom have had a few financial struggles over their lifetimes, constantly fret about the money minefields out there awaiting their children.

We all know the stakes are much higher than they were 20 years ago; today we’re facing near record unemployment among the under-30 crowd and often crushing student debt for young graduates. Aside from the stress associated with debt and lack of income, the financially ignorant risk ruined credit scores, which can hamper them for years. And then, of course, far fewer youngsters today will have a guaranteed workplace pension than their parents.

Most parents want to teach their children to save. I think this is laudable, but wrong-headed. There are more important financial concepts the young need to understand, namely spending and screwing-up.

Teach children where to allocate their money (i.e., how to spend it wisely) and they will also learn to save. Children are natural hoarders, collectors of stuff from dolls to Halloween candy. We don’t really need to teach this saving behaviour. It comes with the kid package.

However, spending is a different story. It’s all about decision-making, consequences, delayed gratification and thinking about the future. Saving is actually a spending decision, as is investing in later years. The purpose of saving is to have money to spend later. So, making smart choices about how money will be spent (or allocated) at a young age lays solid groundwork for the future.

Developing good spending habits often happens through the experience of screwing-up. My daughter, for example, was a devotee of anime movies. But the movies were expensive in comic stores. Despite her mother’s warnings, she began buying her movies on the cheap from street vendors only to discover that at least half of them didn’t work. She learned through her mistake.

Part of smart spending involves asking questions (often as a result of an earlier mistake). Using my daughter as an example once again, she ordered beading supplies from a website with very attractive prices. However, she didn’t notice that the online store was U.S.-based and free shipping didn’t apply in Canada. She also didn’t understand the impact of the exchange rate on the bottom line. What started out as a $19.99 bargain turned into a $32 wallet bite.

Parents often structure their children’s financial lives so tightly that there are few opportunities for them to make bad spending decisions. Then, when the kids become young adults, they don’t have the experience of financial mistakes to guide them in their choices.

I see this often with undergrads who are in charge of money for the first time. If they don’t spend it wisely, the funds run out and they are forced to visit the bank of Mom and Dad. This isn’t necessarily a disaster but it would be far better for them not only to have learned earlier how to make independent spending decisions but also to have had the experience of blowing their money.

There is much for our children to learn about money in a financial world that changes constantly with new technology and products. We can’t prepare them for every bump in the road but teaching smart spending and allowing for failure will help them navigate a sounder financial path.

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