Our two-year-old loves going to Target. For a while, he would put his shoes on, run to the front door, and say, “Go to Target!”. He remembers how to find the toy section and goes straight there when we get to the store. While these are exciting and adorable new behaviors, I realized we have an important role in teaching our children about money.
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I started babysitting when I was nine years old. It consisted mostly of playing with a little girl while her mom was doing other work at home. She paid me three dollars an hour, always in cash. I physically saw and held the money. I felt it leave my hands when I spent it. Sometimes, on the drive home from babysitting, I would beg my mom to take me to the toy store for TY Beanie Babies. I handed my money to the cashier, and in exchange, I would receive my Beanie Baby.
I realize that my son has never witnessed a cash exchange. Because I always use a card, he never sees that we give up money to get something in return. Without seeing this, the impact of any purchase is reduced. He leaves the store not knowing what it means to use money.
Cash Versus Card
There is fascinating research on the way we use money, particularly our use of credit cards versus cash. People prefer to use credit cards because it is easier and safer, but it also has the effect of decreasing what is known as “loss aversion.” We don’t feel the effect of the purchase, or loss, right away. Even more, we can make the loss less noticeable. A credit card takes away the feeling that we bought the item–we receive it now and only handle the bill later. We also interpret the purchase as smaller than it is because it becomes one item amongst many in a larger statement. Research also shows us that people are willing to spend nearly twice as much on an item when they use credit compared to cash.
Focus on These Habits Early On
Our money habits are believed to form by the time we are seven years old. Children observe their caregivers and their environment and learn how to interact with money. Understanding this research allows me to think about what my children witness and how I want to shape their experiences. For now, we’re limiting our son’s trips to the store. We’re explaining, as best we can to a two-year-old, the tradeoffs that occur when we purchase something. As all parents do, we want to set our children up for success. Teaching our children about money early on increases the likelihood that they can form good money habits as they grow up.
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Tips for Instilling Good Money Habits in Your Children
- Give your children cash for their chores. If your child does an extra chore around the house, pay them for it in cash. Allow them to understand what they worked for and earned.
- Give your children the opportunity to spend the money they earn. If your child is asking for a snack or toy at the store, allow them to use the cash they earned to buy it.
- Explain the tradeoffs they face. If your child wants a snack at the store, explain that they may not be able to buy something else in addition. Similarly, if they want a toy, explain that they may not be able to get a snack. They will only be able to spend the amount of money they have earned. If they want more or something else, they may have to wait.
These are important habits to teach our children, and it’s easier when we can give them small amounts of earned cash to practice with.
As they get older, they will likely have cards too, but the lessons learned by using cash will stick with them.
The opinions expressed in this post are those of the author. They do not necessarily reflect the official policy or position of ABQ Mom, its executive team, other contributors to the site, its sponsors or partners, or any organizations the aforementioned might be affiliated with.
