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Kids and Money: Let Your Kids Make Mistakes

In the quest to teach our children about money, we like to see them make smart choices. I know that I’m proud when my son makes the “right” choice with his money. However, sometimes we focus so much on making sure that our kids are doing the smart things with their money that we forget that sometimes we need to let them make mistakes. If you have so much control over your child’s spending that he or she never learns to make the best choices on his or her own, you might find that your child becomes overburdened with money [3] later on. After all, you won’t always be there.

Instead of holding your child’s hand and controlling everything about what he or she does with money, step back a little. Give your child some room to make a few mistakes so that experience can be the teacher.

Small Mistakes Now = Fewer Big Mistakes Later

Of course, there is no full-proof way to guarantee that your child won’t grow up to make poor money choices — no matter what you do. However, you can reduce the chances that your child will make devastating decisions later by letting them make small mistakes now. Letting my son make a silly purchase not too long ago turned into a money teaching moment [4] that has, so far, stuck with him.

My son thought he really wanted some toys that other kids at school had. We hated to see him use his money on these toys; they were cool and novel, but not the sorts of toys that would hold his attention. We decided to let him buy the toys. After about three days, he was bored, and didn’t care about the toys. Instead, he wanted to augment his collection of LEGO Star Wars figures/sets. We counted up his money, and he was short. We showed him how much the other toys had cost, and he regretted his hasty decision to get something else, since he couldn’t afford what he really wanted. Now, he’s much more thoughtful about his purchases.

You can also introduce your teens to the concept of repaying debt by charging them interest. When your teen doesn’t have enough money to purchase something, and they claim they want to “borrow” money from you, make a it a true borrowing experience. Let them experience having to repay you — with interest. Show them what the true cost will be if they have to repay you with interest [5]. You can set up a payment plan, and tell them that they won’t be able to buy other items until you are paid off. If they don’t stick with the payment plan, you can certain repossess what they have bought with your loan. Put it all on paper, and require your child to sign.

These are the types of lessons that tend to stick with children over the long term. My son thinks about what’s important to him, and what might be a “waste of money.” Older children can learn some of the hard lessons of borrowing when they make the “mistake” of taking on debt from you. These are lessons can provide a real-world lesson now, without jeopardizing your child’s financial future.

What other mistakes can children learn from?

(Photo: binusarina [6])