Teaching finance to your youngsters

A few weeks ago, the New York Times had an article about teaching your kids basic financial knowledge.

The article discusses various efforts, especially in light of the financial crisis, to teach young kids about financial knowledge.  It also references a few resources, including a book called Pretty Penny and Sesame Street episodes.  In Pretty Penny, a preschooler must decide how to price items for a shop she sets up.  In Sesame Street, Elmo aims to save money while giving up things he likes, like ice cream.  In From the article:

There is no definitive proof that any of this will make a lasting impact… But the beauty of watching young children absorb these lessons and answering their questions is that it can make you more aware of the financial examples you set. Every shopping trip and holiday gift can become a teaching moment about hard choices, patience and generosity.

The article also mentions the importance of deferred gratification, including a reference to the Marshmallow Tests, on which I had posted a few weeks ago.

But only Sesame has Elmo, and millions of children are very likely to try to mimic his behavior. In the video, he’s trying to save $5 to buy a “stupendous” ball from a street vendor. At one point, he turns down ice cream so he doesn’t lose ground on reaching his ultimate goal.

This moment goes by in a flash, but it is a crucial one. It isn’t easy for a child (Elmo is perpetually 3 1/2 years old) to give up something pleasurable in the moment in exchange for something bigger and better later on.

The ideas being taught to kids in these materials boil down to a few basics: Save, Spend, Share, and Earn.

What you can do:

As the article noted, there’s not a definitive proof that this education will make a lasting impact.

Try these exercises.

  1. Set up a lemonade stand, a garage sale, or an ebay sale with your little one, getting help on setting prices and even bargaining.
  2. Set up deferred gratification experiments with your child.  For example, the next time you’re at a bookstore cafe with your kid (you do take your kid to bookstores, right?), point out a cookie.  Say, “that cookie looks tasty, doesn’t it?  Tell you what.  I’ll get you a cookie now, or next week we’ll come back and I’ll buy you two cookies.”  If your child asks for it now, try *really* hard with rational arguments to change his mind.  If he insists on having a cookie now, do it, but remind him next week that he won’t get his two cookies (and don’t buy him any cookies).  But be sure to follow through with your promise if he does defer.

However, it doesn’t hurt to teach kids about some of these simple ideas.  Some of my favorites are: deferred gratification for saving; earning; and sharing.

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