"Sweetheart, I think you're making a terrible decision. However, I am not going to stop you."
That's from a not-too-long-ago escapade with my daughter, who was about to spend her money on what I honestly thought was dumb. Why, if she was making a mistake, didn't I stop her?
My kids get a weekly allowance of a few dollars, and we have, effectively, no restrictions on how they spend their money. Unless they want to spend it on something that will almost certainly hurt them or others – our name is on the mortgage after all – for the most part, we let them buy whatever they want as long as they have the money to pay for it.
We are working to help our children learn how to make good decisions by putting them in a position where they can make a lot of relatively low-stakes bad decisions. And even then, bad is in reference to our preferences, not necessarily what is bad in some cosmic sense.
Learning Is a Process
It's an approach to financial education, and education more generally. We unschool, perhaps not as radically as some, but we don't follow a set curriculum, and we let the kids follow their passions. What are their passions? Some days it's My Little Pony. Other days, dinosaurs. Maybe it's Minecraft roadblocks. What's important here is the search process.
We are teaching our children to make good decisions by giving them the opportunity to make less-good decisions.I can yell until I'm blue in the face about what I think is important. I can work to control what they read, watch, eat, and so on. At this point, I should note that we do have things like a bedtime, but even then, the restrictions are few. Once in their rooms, the kids will usually play or read until they finally fall asleep. They also have jobs around the house, like unloading the dishwasher, which they are expected to do in order to get paid once payday rolls around.
It really started to click for us when I read a book called The Opposite of Spoiled and I came to realize the degree to which money is a teaching tool at this stage in our kids’ lives as much as it is anything else. My hope is that by trusting them to make their own choices, and by being there to catch them when they fall, we will help our kids learn to choose wisely with respect to how they use their time, talents, and treasures.
There's also an interesting lesson in materialism and happiness in all of this. It's one thing to say to a kid, “You don't need that and it won't bring you lasting joy.” It's something else entirely for them to enjoy the fleeting pleasure of one acquisition and then help them see how the joy didn't last long before they were on to the next thing without which their lives could not be complete.
Scarcity Is Real
There are also few things that help children appreciate the reality of scarcity like seeing that they chose to use their money to buy one thing, and now can't buy another.
Over time, and as the kids get older, we're going to help the kids know how much money they would have had if they saved everything instead of spending it on pins and Power Ranger swords and God knows what else.
It's a very Hayekian approach to learning. My hope and expectation is that the kids will develop better habits through experiment, trial, and error than they would had I simply told them how they should choose, or if they had wanted this bauble or that trinket and I had simply said, "No, that's a waste of money and you'll not have it."
Our experience has seen them making decent choices now. Well, maybe not decent, but better than they used to.
Will the kids ultimately be wise financial decision-makers? Ask us in about 10 years, but we're optimistic.