Friday, June 5, 2009

Budgeting: Part 4: Learning From Children

"Children are like wet cement. Whatever falls on them makes an

- Dr. Haim G. Ginott

A few years ago, we were vacationing in Kennebunkport, Maine for two weeks. At the end of the first day, we were thoroughly enjoying ourselves. The weather was great, the coastline was beautiful, and the lobster rolls were delicious. But there was one big problem.

Kennebunkport has a small downtown area of shops and restaurants. Depending on your point of view, you might call Dock Square a "quaint retail district" or "the usual tourist trap", but at any rate, it's so centrally located that it's not possible to avoid it for two weeks. Personally, I found it quite enjoyable to browse through these shops because many of the buildings are right against the Kennebunk River (some on stilts) and most of the shops are quite easygoing. (Kids OK. Dogs OK. Bathing suits OK. Coffee OK. Food OK. Loitering OK. You get the idea.)

Unfortunately, however, my children were driving us absolutely crazy whenever we passed these shops! They kept picking up everything and holding it up and asking us to buy it for them. Since it was only the first day and most of the items held up were total junk, there was a universally negative response from the parents, which was met with an equally negative response from the children. In spite of all the no's, the continual nagging went on all day. In fact, as the day wore on, it only seemed to get worse. The children were determined to find something to acquire, and it seemed they were going to ask hundreds of times about hundreds of items until we relented. It was almost as if some "spirit of consumption" entered their body and said they must not leave without buying something! Obviously this is very wearing for any parent, and we were alarmed that if this continued the whole time, it would ultimately ruin the vacation.

After the kids were asleep that first night, my wife and I sat down to discuss what we were going to do about the problem. Now one thing I always try to do as a parent is to imagine myself as one of my kids and try to understand exactly what they are thinking. If we are honest, I think we have to admit that the emotions and actions from children are not usually fundamentally different than that of adults - with kids, everything is just a lot more exaggerated. After a little reflection, it suddenly occurred to me that the kids' behavior was not really that irrational after all.

The reason why they were treating their parents like a slot machine was because, in fact, we were acting a lot like a slot machine. We kept saying "no" to them, but there was a hesitation in our voices. Kids always pick up on that immediately. They could tell we were thinking about it. Also, we didn't care to spend our limited vacation time giving a lengthy rationale for each response, and this was interpreted as indecisiveness. So the bottom line is that they intuitively assumed that mom and dad had no real game plan for what could be purchased, and that because we hesitated without explanation on each item, there was a small chance that if you asked enough times with enough items, eventually some request would be granted. And do you know what? They were right! We had no game plan and if we were sufficiently worn down, we would probably just say "yes" to something at some point!

So we formulated and agreed on a simple plan. We were going to give them a framework for buying things themselves. I had no idea whether this would work, but I felt it was worth a try. I still have no idea whether this was good parenting, but I know one thing: it solved all the nagging. Immediately. In fact, we were truly startled by how well it worked. Here's what happened.

The next morning I sat down with the children and explained the new rules:

  • I am giving each of you $25 to spend on our vacation trip.
  • The $25 is entirely yours to spend however you like provided nothing is age inappropriate (e.g. no sharp knives).
  • Once the money is gone, there will absolutely, positively be no more money given.

Immediately after explaining rule #1, my oldest asked, "How much do shrimp cost?" Trying to hide my laughter, I then also had to add some additional guidance that all meals and desserts and activities would be provided at no cost to them. (This was vacation after all.)

(I know some people will argue that you should never give children money unless they earn it. Others will complain that $25 per kid was a ridiculously large amount of money to entrust to small children who could barely add things together. Still others will say that the amount was "unfair" because it was way too small relative to the large amount of money it costs to stay in a resort area for two weeks in the summer. So let's be clear: I'm not holding this out as an example of the "right way" to teach kids about money. I'm holding it out as an example of how kids respond.)

After this discussion, the very first thing my oldest child did was to march into a toy store, pick up some item, and ask how much it cost. I cringed as I read the price tag aloud: $24. It seemed really poorly built and I was certain it would be discarded after a couple of days. Nonetheless, I needed to abide by the rules I had established. If the kids wanted to buy it, then we would buy it. Upon hearing the price, to my great relief, my oldest blurted out, "No way! We're not spending all my money on that!"

Suddenly there was a lot of comparison of prices between stores and comparison of features between items. My oldest child seemed to learn more arithmetic in those two weeks than at any other time in life. There was also a willingness to wait and see whether something better turned up tomorrow. All the mindless nagging about potentially buying every item in sight was gone, and was replaced by a reasonably careful consideration of how to spend their money. But it was even better than that. The advice from mom and dad about purchases had previously been totally dismissed as parental gibberish. But now we were suddenly sought out as consultants! "Do you think this will break easily?" "Could I get this cheaper somewhere else?" "Why is this model so much more expensive than the other?" "Would I be able to take this back if it didn't work?"

All in all, it was an incredible turnaround of behaviour. So what changed? Two things changed: ownership and budgeting. First, ownership of the money themselves made them value it and respect it. Second, having a very simple, clearly defined budget made them take a holistic approach to spending it wisely.

By the end of our vacation, I was very proud of the way my kids handled their money. I even had them write down on a 3x5 card all the different things they were able to get for $25. You would be surprised how far $25 goes when you are so careful with it! On the last day, I also snuck out and purchased a couple of quality items from the toy store that the kids had admired, but could not afford with their money. How startled they were to unwrap these items at our next Christmas!

My initial fears that the shopping district would ruin our vacation were unfounded. On the contrary, not only did we have a great vacation, but the entire spending issue proved to be a great learning experience for both the kids and the parents.

If a budget works this well for kids, think what it can do for adults.