If you’re financially irresponsible, here’s a bit of consolation: Now you can officially blame your parents.
A new British study on financial literacy finds that many of the habits that determine how we spend our money as adults are inculcated (or not) when we’re as young as seven years old. The study urges parents to go through various types of financial exercises with kids and exploit teaching moments when in the midst of actual commerce. So if you’re a parent, in addition to prepping your tyke for Harvard and training a future Olympian, you should also be spending those early years cultivating a model spender.
Here are a few ways the British researchers suggest teaching kids financial responsibility, which, come to think of it, might help those profligate grown-ups we all seem to know:
Practice “distraction techniques.” Kids with a few bucks in their pocket can be impulsive spenders, so the researchers suggest parents find clever ways to delay the seductive gratification of buying stuff. “Parents can distract the child from their immediate desires to spend by helping them to plan and think about an attractive alternative [such as going for a bike ride], which might help them overcome any inclination to make an impulse decision,” the study says. For older overspenders, substitute an episode of "Breaking Bad" for that bike ride.
Window shop. Checking out merchandise you want to buy — but may not be able to afford — teaches kids you can’t have everything. “‘Window-shopping’ provides good opportunities to discuss facts relating to not being able to afford everything that is wanted,” the study says. “These experiences provide a salutary environment in which to reason about equality or inequality in the economic world, and perhaps even fairness or justness.”
Pay them for small jobs. At some point, workers need to learn that the amount of money they earn is directly related to what they accomplish on the job. So instead of letting kids enter the workforce with an inflated sense of their own worth, why not teach them how to become a valued employee early on? “Talking about the different amounts of money that are awarded for different types of work is a valuable way to raise children’s awareness of ‘earnings,’” the study says. “Allowing the child to take on small-scale ‘jobs’ around the home for pocket money may be a method bringing to life for children the concept of giving up time and effort for a monetary reward.”
Teach what advertisers are really after. An endearing ad can coax us to forget that the purpose is to persuade us to buy something we don’t really need. Kids are even more gullible than adults, needless to say, but by the age of 7 or so they’re able to understand the “persuasive intent” of ads, according to the study authors. They recommend stronger efforts to teach youngsters “media literacy,” so they become more skeptical consumers who don’t necessarily believe everything they’re told.
There’s been an intensified push to improve financial literacy in recent years given a low saving rate, poor preparation for retirement, high debt loads and a housing bust in which millions of people purchased homes they couldn’t possibly afford. Improving financial literacy in the United States is one mission of the new Consumer Financial Protection Bureau, which has called for better financial education at home and in schools and provided guidelines to help parents teach their kids about money.
Still, many kids will probably learn important money lessons on their own, even if their overspent parents fail to indoctrinate the virtues of thrift. The go-go decade of cheap and easy credit is over, with banks much more reluctant to lend money to undisciplined spenders. The recent housing bust and 2008 financial meltdown forced millions of consumers to be more responsible spenders and raised awareness of the need to manage money better. And the word is out that young workers who waltz into the job market expecting extravagant pay may discover they’re lucky to land a minimum-wage job.
Culturally, it’s no longer cool to spend everything you earn, and milliennials — those aged between 16 and 34 —seem less interested in buying costly things than the generation or two that preceded them. So an Age of Thrift may be dawning, regardless of what parents teach their kids. Good thing, because a lot of kids don’t listen to their parents anyway.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.