As the author of Beyond Piggy Banks and Lemonade Stands: How to Teach Young Kids About Finance , I often get asked the question “What is your number one tip when it comes to teaching kids about finance?”. That’s a tough one. Off the top of my head is how to save, how to budget, the importance of giving back, needs versus wants…not to mention priorities, earning money, etc. You get my point – there’s a lot, and it’s all important.
However, there is one skill that every child must understand if they want to become a financially healthy and independent adult. But really, this skill is an absolute necessity across the board when raising your child. As parents, we have to teach our children how to make smart decisions. You know the saying: “You can lead a horse to water, but you can’t make him drink”. We can teach our kids all about finance, nutrition, safety, kindness, and health – but ultimately, it’s going to be up to them to decide what to do with all of this information. Which is why having good decision-making skills is critical.
Right or wrong, your child is already an experienced decision maker. Decision making is a skill your child uses all day long. Many of their decisions are small and set on autopilot, like deciding to put their shoes on in the morning. Others are larger decisions and may require some thought, like which friend to play with at recess. Decisions kids face usually don’t have life-long consequences, or if they are important their parents are there to help them make the right choice.
As they get older the decisions come with bigger consequences and/or rewards. Our adult decisions determine the path for our life: which home to buy, who to marry and what job offer to accept.
We want our kids to be happy adults. We hope they are successful, healthy and independent. All of this, their entire future, is based off the decisions they make. If they choose to eat well, not experiment with drugs and make exercise a habit – most likely they will be physically healthy. If they decide to work hard – there’s a good chance they’ll be successful. If they choose kindness each day and decide to give back to others – they will grow to be emotionally healthy adults. And yes, if they learn at an early age to save part of their earnings and budget smartly – they will grow to be a financially responsible adult.
Below is an excerpt from my book, Beyond Piggy Banks and Lemonade Stands. The steps are specific to teaching a young child how to make a financial decision but can be applied to any subject, at any age.
Steps to Smart Decision Making
Let’s look at an example that every parent (unfortunately) knows all too well. You are with your child at the local carnival, mall, fair, or amusement park. Your child has some money from allowance burning a hole in their pocket. The first toy they see is a cheaply made, knock-off stuffed Minion doll (insert latest movie character here), which they decide they must have. Every urge in your parent body is screaming to tell them not to buy it, because you know in twenty minutes it will either fall apart, or they will find something else they want. However, this is a perfect time to let your child make their own decision and help guide them through the decision-making process.
- Stop and identify the decision : Because your child is young, they are naturally impulsive and often jump at their first whim. Your child may not even realize they are making a decision. So the first step is to encourage your child to slow down and recognize that there is a decision that needs to be made.
- Minion example: “Okay, Bella, I understand that you really want this doll. Before you make the decision to buy this doll, let’s stop and think about it for a minute, just to make sure you’ll be happy with your decision.”
- If you immediately tell them they shouldn’t get the doll, it makes their defenses rise, meaning they will now insist on getting the horrid doll. By acknowledging that they have a decision to make, it not only slows them down but also lets them know that this is their decision and gives them a feeling of control.
- List out the options: Make sure your child understands that any time they make a decision, they are choosing one option over the others. Ask your child what their options are and discuss the possible opportunity costs.
- Minion example: Ask Bella what are her choices in this decision. She may say, “I can buy this Minion doll, or I can buy a different toy”.
- Help her see that there may be other options, such as saving her money for something later. Another option could be waiting a day, and if she still really wants it (she won’t), she can then come back and buy it. The opportunity cost for buying the Minion is she can’t buy another toy or save that money.
- Evaluate your options: Walk your child through the pros and cons of each option. This is the time to ask questions, such as “Why do you want this?” and “What are you going to do with it?”
- Minion example: “Bella, it seems like your options are to 1) buy this doll now, 2) wait a day before buying it, 3) find another toy to buy now, or 4) save your money for later. Let’s think about each option. If you buy it now, you could have a lot of fun playing with it, but how will you feel if it falls apart tomorrow? Or if you buy it now, will you be upset if there’s something you want more when we go to the Disney store tomorrow, but you already spent all your money? What will happen if we wait and walk around a little? We can always come back if you still want it…”
- Clearly, every parent reading this is trying to gently guide their child away from the hypnotic Minion, but be sure to make it known that this is their decision.
- Make your choice, then analyze: Ask your child what their decision is. Then bite your tongue and roll with it. Note that obviously “rolling with it” may not always be appropriate. Children don’t have the maturity and experience to make important decisions. If it’s a large decision or one with real consequences (such as buying a dangerous toy, or choosing a sleepaway camp), parents may need to step in to decide for the child. However, if it’s a decision where the worst-case consequences don’t harm your child (or others), then just let them choose. Letting them fail and feel the disappointment of a wrong decision will encourage them to avoid bad decisions in the future. Later, discuss with your child if they are happy with their decision, and what they wished they did differently.
- Minion example: After all of this, Bella decides to get the wretched doll. Even though you are screaming inside, let her make the mistake. If you tell her she will regret it, you will most likely get either an eye roll or an emphatic “No, I love Minions, I will play with this all of the time!” The only way she will learn is to go ahead and buy the doll and realize on her own that she made a mistake.
- When she inevitably regrets this decision, avoid the temptation to tell her that you knew she would. Ask her why she regrets the decision, and what she wishes she did. Try to get to the root of why she regrets her purchase. Is it because the toy is falling apart? If so, talk to her about the importance of quality, and suggest she study a toy carefully first to make sure it won’t break. Maybe she regrets it because after walking around the carnival, she found a toy she wanted more than the Minion. If that’s the case, tell her that the next time she wants something, it’s okay to wait and make sure that’s what she really wants to spend her money on.
Depending on the type and size of the decision, the decision process could take a total of two minutes or two weeks. More than likely, your child is already conducting some version of this process already with every decision. However, it probably goes something like “I want that Minion doll. I can buy this Minion doll now. I’m going to buy the Minion doll. Mom, the eye fell off! I wish I hadn’t bought this stupid Minion doll.” All you need to do is help them stretch out the process and think it through.
Whether it’s a decision to buy a toy, what to eat or who to play with – if your child learns how to make smart decisions now they will grow to be healthy, independent adults. And really, isn’t that all we want for them?