Young girl smiling with money
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Step 1 of Jean Chatzky's 6 Steps to Raising Money-Savvy Kids offers you a new way to view how and what you provide your children.
Although some interesting new research has shown that there is an innate component to a child's money proclivities—it goes a long way to explaining why one of your children spends every penny that passes through his or her fingers while the other can't bear to part with a buck—a great deal has to do with what you teach them. This sort of education, you'll be happy to hear, has far less to do with demonstrating how to read the stock pages than it does with how to make good choices. In other words, raising money smart kids is all about being a good parent rather than being, say, Warren Buffett.

First things first: Are you spoiling your kids?

As an adult, there's one thing you know for sure about money—it's a limited resource. And yet, that's a message we have a tremendously hard time passing along to our kids. Many of us—often because we feel parental guilt for hours working (or playing) outside the home, away from them—give our kids most of the things they ask for, despite the fact that we may not be able to afford them.

Research has shown this is not just bad for your pocketbook. It's bad for your children. In her book, Born To Buy, Juliet B. Schor recounts her study of 300 fifth- and sixth-graders. She found those who are mega-consumers by this age, who can't be pulled away from the TV, the Internet or whatever technology you've purchased for them, are more likely to have problems with boredom, depression, headaches and stomachaches. And it gets worse when they get older.

Tim Kasser, a professor at Knox College in Galesburg, Illinois, found that the more importance teenagers place on the things (and money) in their possession, the more likely they were to smoke, chew tobacco, drink alcohol, smoke marijuana and have sex. And when Connie Dawson, a therapist in Kirkland, Washington, surveyed 1,200 adults, 71 percent of those who said they had been overindulged as kids reported not feeling satisfied as grown-ups.


You can do a few things from the time your children are very young—before they enter grade school in fact—to insure they don't dive into this want-it, need-it, have-to-have-it cycle of doom. And don't worry if your kids are beyond that age. It's never too late to start to make these changes. It won't necessarily be easy (you can expect a few weeks of back talk), but stick to your guns and they'll get the message: The Bank of Mom and Dad is no longer open for business.

Make them choose
Children can handle making choices from the age of 2. When they're really young, help them to choose between only two items. As they start grade school, they should be able to make a decision among four, five, even six. A great place to begin this exercise is at the grocery store. Let your child choose whether it'll be Raisin Bran, Rice Krispies or Cheerios. (Don't put a sugary cereal on the list of options if you don't want it in the house.) Or chocolate, vanilla or strawberry ice cream.

Explain your decisions
There will come a time—very likely in that grocery store—when you'll hear, "But I want both!" That's an opportunity for an educational moment. Just like you can't have both the SUV and the Hybrid, they can't have both kinds of cookies.

And this is how you explain it: "Mom and Dad work hard to earn the money to buy the things we need, but if we are going to have money leftover for the things we really want tomorrow—like our summer vacation, a nice Christmas or Hanukah, and eventually college for you—we can't spend every penny. We have to try hard to buy the things we need (and we do need some cookies to put in your lunchbox), but we also have to try hard not to buy all the things we don't need (and we don't need three different kinds of cookies in one week). So pick the one you like the best, and next week you can pick a different kind."

Understand that limits like these (just like those on R-rated movies and reasonable bedtimes) are good for kids
Harvard Psychologist Dan Kindlon's research has shown that kids who had consistent limits through their lives were less likely as they grew up to use drugs and get depressed than those who were given free reign. You've likely heard that kids want limits. What Kindlon's work shows is that they need them as well.

Then expect them to stick with their choices
Once they make a decision about the cereal, the candy bar or whatever you've put in their universe, don't buy another one until it's gone. If you head back to the grocery store the following week with a full box in the pantry, you can explain to your kids that you don't need a box of popsicles because you (and they) haven't finished the box of Fudgesicles they picked out last week. Don't succumb to the whining. Just keep your cart moving through the aisles.

Now that you're ready to stop spoiling your kids, it's time to teach them more responsibility. 

Start step 2: How and when to give your child an allowance

Get all the steps to raising money-savvy kids


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