How Kids Learn to Handle Money

I love this time of year. Fall is in the air. You know what that means:  football, pumpkin spice everything, and most importantly, the kids are back in school. Can I get an amen?

As I have been getting back into the swing of helping to pack lunches and get homework done, it has reminded me about how kids learn. And, when it comes to money, how we as parents get in the way of their learning.

A Tale of Two Cars

Recently, one of my newer clients was complaining about his son, a college student who had just paid thousands of dollars for a sports car that could only drive one place:  the garage – for thousands more dollars of repairs. My client was shocked that his son had handled his first major purchase so poorly.

“I knew it,” he said. “I should have gone with him. I could have warned him. I could have protected him from this mistake.  And, you know, it worries me because if this is how he blows through his money, what will he do with the money I’ve worked all these years to leave him?”

My client’s situation reminded me of something that had happened in my own house. Like our client, I had also watched my son pay far too much for a sports car that had broken down a few weeks later. The only difference was that his car was six inches high and came with a remote control, and the cost of his mistake didn’t involve a comma.

A Dangerous Comfort

I empathized with my client because he meant well. For years, he had protected his son from the disappointment of making bad decisions with money. We know that the useless pieces of plastic our kids want to buy will disappoint them. So, we prevent them from having to go through that pain because we care about them. This approach to parenting makes sense. It feels like we are keeping them safe; in fact, we are leading them into danger.

See, when it comes to money, there is one great guru and the sooner your kids meet him, the better. Unfortunately, this Yoda of financial wisdom doesn’t teach at your kids’ school. You can’t request him as their homeroom teacher. Get this:  The greatest teacher about money is buyer’s remorse.  The problem is that our kids will only learn from buyer’s remorse once we let them.  If we wait too long for them to be exposed to it, the same basic mistakes come with a much higher price tag, and they could do some serious harm to their financial well-being.

People need to learn the same things about money at some point in their lives. No one emerges from the delivery room ready to make great decisions with money. We can’t determine whether our children make spending mistakes. The only thing we determine is how much those mistakes will cost. By making every buying decision for them, we only raise the stakes of their future failures and we keep them from real success.

Here are six kinds of buyer’s remorse that we learn from: 

  • Remorse from buying something on impulse instead of taking time to figure out if we really want or need it.
  • Remorse from buying something because the marketing made it look better than it was.  
  • Remorse from buying something that is cheaply made and breaks quickly.
  • Remorse from buying something because it’s the newest fad and everyone has it, and then realizing they don’t like it and never use it.
  • Remorse from buying something without doing enough research, then realizing that they could have purchased a superior version for the same or less money.
  • Remorse from buying something without knowing ourselves. We think that art set or that tennis racket looks fun, but then discover that we think art is kind of boring or that we hate playing tennis.

I know that you have made all of these mistakes in your life.  We all have.  And you learned from them.   We need to set our kids up to be able to have these same experiences as soon as possible so that they are better prepared when the stakes are higher.

A Financial Laboratory for Kids

Let’s talk about ways that we can help our kids learn through experiences with money.

First, our children need to use their own money. They have to know what it feels like to have a finite amount of money, a concrete number that will decrease once they make a purchase. In order for a disappointing purchase to be a learning experience, it has to cost them something.  For that to happen, they have to have some sort of regular allowance, and you must become a teller at the Bank of Mom and Dad. I will walk you through the details of how we’ve set that up in our family in our next post.

Second, we have a conversation before the purchase. Ask the kinds of questions that uncover your child’s motivations and expectations. What makes them want to buy this thing? What gets them excited about it? What is it about this thing that will make them happy? How do they think it will work?  One of the privileges of parenthood comes from learning alongside our kids, and the answers to these questions might surprise you.  I know I have come away from these conversations with some great insight into what my kids love and why.

Lastly, we circle back after our kids have spent the money. This conversation looks back on the questions we opened up before the purchase. In what ways did it do what we hoped, and in what ways did it disappoint?  We make ourselves a sounding board for our child’s experiences of reward and remorse. When something they bought with their own money does what they hoped it would do, we can celebrate that with them and share in their pride of having paid for it themselves. However, when the thing they bought is a dud, we can be there to help them unpack how they got duped.

The key here is to listen with empathy. If it seems strange to call remorse a great teacher, it’s because some parents mix it with shame. We’re not out to make our kids feel like idiots. Saying I told you so only teaches them that they can’t trust us as listeners and that mistakes are not permitted. We don’t feel anger when they make these mistakes because they’re not wasting our money. We get to be on their side, and help them see how they could avoid making the same mistake in the future.

I always tell my kids, “It’s okay to make mistakes.  Just try to make new ones.”  If we can give our kids access to the learning that buyer’s remorse provides now, while the mistakes cost very little but carry the same lesson, we will empower our children to start moving on their paths to success. And like all great parents, we will have worked ourselves out of a job.

James Lenhoff is the president of Wealthquest, a Cincinnati-based financial planning and wealth management firm that offers a full range of financial services under one roof, for one simple fee.

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