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Lesson 18: Teach Your Kids to Save vs. Spend

This time we’re going to apply our new-found appreciation for opportunity cost to an age-old personal choice: to save or to spend? Growing personal savings as compared to spending all your cash is a timeless challenge. Perhaps you remember when you were a kid yourself, your parents shouting “you should be saving your money!” and “every dollar counts!” down the hall as you left to go out with friends.

Here’s another way to teach your kids to save money, while helping them to discover the “why” of saving — and form habits that will benefit them their whole lives.

Teaching Finance Life Lessons

Financial Life Lesson: Saving vs. Spending

For elementary ages: 

If we know that every choice has an opportunity cost, does the decision to spend or save our money also have an opportunity cost?

Of course it does! So, how do we decide? We apply our question: “What is the wise thing for me to do?” In order to do that, we have to define what “wise” means as it relates to money; financial wisdom, as it were!

Help your kids understand that being “wise” with money means thinking about more than what makes them “happy now.” Each decision with money should not be made quickly. You are being wise when you consider the opportunity costs involved.

Have the kids write down an annual goal (or two or three) for their money.

Piggy Bank

For Middle Schoolers / Teens: 

For older kids, the same advice on opportunity cost applies – the decision to spend or save carries with it an opportunity cost.

Now, even though this question works when thinking about any and every decision, what does “wise” mean when we are talking about our money?

In this context, “financial wisdom” or “wise” refers to habits, circumstances and goals. Ask them to consider their past experiences with money, their current circumstances in regards to money, and their future hopes and dreams that will require money. Given those things, ask them to answer: What is the wise thing to do?

Have the kids write down an annual goal (or two or three).

Save Your Pennies

For Parents:

With elementary school kiddos we want to start weaning them from “happy now” and get them to consider “delayed gratification,” which we’ll discuss further in a later lesson.

With our middle schoolers and teens, we really want to impress upon them the use of this question — then coupled with opportunity cost considerations. We want to wean them from asking things like:

  • “Is it wrong if I spend the money?”
  • “Is it bad if I spend the money?”
  • “Am I doing anything illegal by spending my money?”

Of course, the answer is “no.” It’s just a form a self-justification. However, if you have them apply the question “Is it wise?” they are forced to consider their best interests.

Whether or not they make the right choice, they will immediately know what the right choice is!

Read Previous Kids & Money Entries: Financial Life Lessons for Kids

September 2018

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