The Best Way to Teach Kids How to Make Good Spending Decisions

Personal finance may be the most important topic typically not taught in school. And where it is being taught, there are mixed results. The main problem seems to be a lack of practicality—lectures and simulations will only get you so far.

As I thought about the general ineffectiveness of teaching kids about money in a classroom setting, I was reminded of something I read in Mary Hunt’s book, Raising Financially Confident Kids, which I highly recommend (Mary also runs the Debt-Proof Living web site and writes the Everyday Cheapskate blog).

In the book, she tells the story of “Uncle Harvey.” Harvey lived far away and was a bit older. While they hardly ever saw him, when Mary and her husband, Harold, were raising their two boys, the legend of Uncle Harvey loomed large.

Managing real money in the real world

They had heard that at the start of each year, Harvey would sit down with his family and hand out a year’s worth of money to each of his and his wife’s four boys. The money was for clothing, snacks, entertainment, haircuts—everything but food and shelter. It was up to them to make it last. If they ran out of money before they ran out of year, too bad. And, the Hunts heard, each of Harvey’s kids grew up to be very good money managers.

It prompted Mary and Harold to give it a try with their boys. In her book, she explains how they rolled the plan out with their kids, some of the early fits and starts, and how it all turned out. It made me want to try it with our kids who were then 9, 11, and 14.

A living laboratory

At that point, we had long given them an allowance and had been pleased with the habits they had built around generosity, saving, and spending. But now it was time to take it up a notch, and Mary’s book gave us just the idea we needed.

We decided to give our kids most of what we typically spend on them for clothing each year, one month at a time. They kept the money in an envelope. Each month, we added $25 to each envelope, and they recorded the inflow and expenditures on the outside of the envelope. Very quickly, it proved to be a powerful teaching tool.

I will never forget taking our then 11-year-old son and 9-year-old daughter to Old Navy. Our daughter was in search of some jeans. Our son said he didn’t really need anything (he cares about his clothing—almost the polar opposite of his older brother—so I confess that I wondered whether he could really go to a clothing store and not buy anything).

After trying on several pair of jeans, our daughter decided on one pair that was being offered on a nice discount. Then we headed over to the deep discount rack where she found two tops for about $2 each.

At that point, our son said he wanted to buy something after all. I reminded him that he said he didn’t need anything. But he insisted that he could use a new sweatshirt. Then he picked one out that was 30% off, but still seemed kind of expensive to me and looked a lot like one he already owned.

Still, I backed off, wanting him to make his own decisions. I figured, if he later regretted the purchase, that’s part of what this is all about.

It’s different this time

I can’t fully put into words the fascination and joy I experienced as I watched each one navigate this process. They were clearly thinking and making decisions about purchases in a way that was new to them.

Of course, they had made purchases before, but there was something very different about this experience. This time they were much more in charge. Seeing them hand over cash and take responsibility for their clothing budget is very different than us buying the clothing with a credit card and managing a “kids clothing” budget on their behalf.

I may be just a little too into this whole financial teaching thing, but honestly, watching them approach the cashier holding the clothing they planned to buy in one hand and clutching their envelope with cash in the other actually brought tears to my eyes.

I’m convinced that having kids use real money in real situations is the absolute best way to teach them about money. It’s filled with potential to teach them in very practical ways what it means to make trade-offs, patiently save to buy a special article of clothing, manage a budget, figure out how to stretch their money, and so much more.

I highly recommend using this process with your own kids. And, of course, I highly recommend that you pick up a copy of my book, Trusted: Preparing Your Kids for a Lifetime of God-Glorifying Money Management.


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