Money Skills for Kids

Lesson 5: Adults, Children And Money...How Much Is Too Much?

Common mistakes children make

Children will make mistakes with the money that is entrusted to them. This is ok. Actually, you should hope that your child would make mistakes, since these mistakes will provide numerous learning experiences. If your child spends all of her/his allowance on Monday, s/he will need to learn that for the rest of the week there will be no candy, no movie tickets, etc. This is a valuable lesson learned, in that later on, when s/he is on her/his own, s/he will be far less likely to spend an entire paycheck on Monday, and then have no food money for the remainder of the week. Some of the most common mistakes children will make are:

• Impulse Buying. Colorful advertisement, strategic placement of candy and other little trinkets at the cash register, etc. will contribute to the child’s being tempted to buy something s/he did not originally plan on buying. Allow your child to make this mistake, and then afterward talk to her/him. Give her/him the tools needed to overcome the impulse to buy. These tools are some very simple questions:
  Do I really need this item?
  If not, do I really want the item?
  Why do I want it...do I know when I will use/wear it?
  If I buy it now, will I have enough money for other things I want later on?
  Do I realize I can come back to buy the item later if I really want it?
  Could I find a similar item cheaper elsewhere?
  
• Succumbing to the Lure of Credit. Your child will be offered credit, be it at the store early on, where a kindly shopkeeper will give out candy now with the promise of getting paid later, or be it by you, when you give her/him a credit card to use for emergencies. It is essential that your child understands that credit in itself is good, but that it is far too easy to abuse. Ensure that your child knows that when s/he accepts credit, s/he is essentially taking out a loan that must be repaid. In the case of credit cards, the credit will not cost anything if the balance due is paid off every month; however, there may be hidden costs if the credit card company requires a “membership fee”. On the other hand, if your child is unable to repay the credit card in full s/he will have to pay interest (finance charge) on any left over, unpaid balance. The child needs to see, on paper, that the amount of the finance charge increases the actual cost of what s/he bought, and suddenly a good deal is no longer all that good. This early lesson in fiscal responsibility will hopefully prevent her/him from accepting more offers of credit than s/he is prepared to repay at any given time.
• Wasteful Spending. Your child will buy items that you will find useless, wasteful, and downright irresponsible. Remember that no matter what s/he buys, each financial transaction is a learning experience. Going back to the example of the brand-name sneaker versus the no-name sneaker...allow your child to save up, do extra work to earn money, and overall limit her/his spending to purchase the sneaker s/he wants. Then, discuss how your child feels about the accomplishment of paying for the item from her/his own money, and seek to ascertain if s/he really feels the hard work and effort was worth it. Chances are s/he probably won’t, and this will allow the child to understand that a lot of advertising and peer pressures are nothing but hype. On the other hand, if s/he is still honestly enthusiastic about the purchase, at the very least s/he is understanding that achieving the goal of owning name-brand items takes longer than owning no-name items, and will know how to save up for such purchases.

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