The financial wisdom of children

April 02, 2012

| Money Rates Columnist

In many cases, financial wisdom emerges from years of hard-fought experience. But sometimes, great insights can come from those who simply view money with fresh eyes -- such as your children.

With Financial Literacy Month (April) in full swing and Teach Children to Save Day (April 24) just around the corner, MoneyRates.com Senior Financial Analyst Richard Barrington, CFA, has examined interview responses from kids of various ages to see how much they really know about money. Some of their insights may surprise you.

This is the financial wisdom of children:

Ava, age 6

Is it important to save some of your money? Why?

Yes, because if you really need something, you’ll be able to get it if you save. If you spend all of your money on clothes or something, you may not have enough money to buy food.

What is a credit card? Why do people use them?

People use credit cards instead of money because the cards are really skinny and they don’t want to carry lots of dollars.

Is it better to spend all of your money right when you get it or to save it for something big?

It’s better to save. If you want something small, you can always wait. You usually don’t need it.

Why do your mommy and daddy take their money to the bank?

Because they will keep your money in an account to keep it safe. It’s like a piggybank for old people. Old people don’t have piggybanks.

Richard says: “Ava's comment that ‘If you want something small, you can always wait. You usually don't need it’ should be stitched on the wallet or purse of every adult who is struggling with credit card debt. After a brief period of reducing debt following the financial crisis, Americans are once again ramping up their indebtedness. At least young Ava's remarks carry promise that the next generation will do better.”

Charlie, age 7

Is it better to spend all of your money right when you get it or to save it for something big?

Save it!

What’s something big you might save for?

A car and college.

Why do your mommy and daddy take their money to the bank?

So they can add it to their account.

Why do they want to add it to their account?

To keep their wallet from being too fat.

Why do some grown-ups have lots of money and some grown-ups don’t have much at all?

Some spend and some save.

Richard says: “Charlie is a boy with his eyes on the prize -- or actually two prizes: a car and college. This is significant, because you'll teach a very incomplete lesson if you try to impart to kids the value of saving money simply as a moral argument. There is a moral value to saving, but people also need to understand the utility behind their actions. Charlie's examples of a car and college show that he is able to think long-term, and perceive the rewards he might get in return for saving.”

Erin, age 9

Is it important to save some of your money? Why?

Yes, because if you want to have stuff like a house you need lots of money.

If you found $20 on the street, what would you do with it?

Give it to my mom to save.

What if you found the person who lost it and they gave you part of the money as a reward?

I would get something special for myself, like a Monster High Doll.

Why do some grown-ups have lots of money and some grown-ups don’t have much at all?

Some grown-ups who went to college have more money because they make more. Others don't because they spend it all on stupid stuff like games and stuff.

Richard says: “It's interesting that Erin would give her mom found money to save, but if the money were given to her specifically she would spend it. Perhaps Erin identifies saving as something that grown-ups do, and spending as something that children do. This might be a good time to point out to Erin some of the benefits that she could get from saving money, even at her young age. Since Erin was willing to turn found money over to her mother, she certainly has a strong enough sense of responsibility to take that kind of lesson and run with it.”

Lulu, age 3

If I gave you a dollar, what would you do with it?

Buy a Barbie doll.

Is it ever a good idea to save the money you get?

No. You need it to buy toys.

Why do mommy and daddy take their money to the bank?

Because the bank needs the money to give it to different people.

Why do mommy and daddy go to work?

To get money. Then they can get stuff for their little kids.

When you grow up, are you going to have lots of money or just a little bit of money?

Lots.

How do you get lots of money?

You have to go to work and get it.

Richard says: “Lulu's position that you should always spend rather than save money puts her well on her way to becoming a typical American consumer -- though fortunately in Lulu's case there is still plenty of time to change. Lulu's comment that banks need money to give to other people is very perceptive -- this pretty much captures the relationship between deposits and lending. Interestingly, when talking about saving and banking, none of the kids mentioned earning interest. This suggests that showing children how interest can make their money grow would be a good lesson for parents to teach -- though perhaps it would be better to wait until interest rates are a little higher!”

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