Learning about money is hard (not just for kids)

Recently David is getting very good with counting and some simple math. We thought that this may be a good indication that he is ready to learn about handling money and started giving him allowance last month. The little dude has been watching his sisters buying their own toys for quite some time now and is quick to grasp the idea. Not surprisingly, he requested to spend some money to buy his recent favorites: Matchbox cars.

I thought that this is a perfectly reasonable request and the $1/toy price tag works great for our purpose of teaching him money management. So I took the kids to the store last night and allowed him to find some cars that he wants to buy with his own allowance. As expected, the pile quickly grew to more than what he can afford so I suggested him to pick maybe 3 cars that he likes the best. He happily accepted my suggestion and made the decision. What surprised me was that, as we were on the way to check out, Alyssa pulled me aside and asked if she can buy a car for David with her money, "because I want to make him happy".

Understandably, I was thrilled to hear about that. After learning to manage her allowance for about 2.5 years now (we started back in July 2007), she has a pretty good idea about what this is about. She learned to spend money to make herself happy (certainly not as easy as it sounds), save up so that she can make bigger purchases, delay her decision to buy something so that she would be less likely to regret about it, and resist the urge to buy something just because her sister is doing that. Without a doubt, all these are pretty important lessons to learn. However, figuring out that money is a tool that can influence not only oneself but also others around you apparently is another big step.

So we went back to the toy aisle again and I got the second surprise. Alyssa didn't just get one, she ended up getting three cars for David, "because I think he will like all these".

My dilemma with these pleasant surprises is how to reward her decision for positive reinforcement in an appropriate way (still have no good answer after thinking about it for a day). After we got home, Ann and I both praised her and told her that we are very proud of her decision. However, I tried not to make too big a deal out it because I don't want to make her feel like she need to do this to gain our approval. Also I have to resist the urge of compensating her in material (money or other things), otherwise it will teach her the wrong lesson. Although I have to say that the temptation of doing so is quite strong for an overjoyed father.

Walking the fine line of financial education is indeed a tough business. It's not just the kids, the parents have a lot to learn along the way too.