Teaching Kids About Money

Today, I’m going to blog about money. Precisely, how to be rational with it.  This is not an investment post or a guide to cryptocurrency; instead, it focuses on raising kids to view money sensibly and what happens when our emotional brain interacts with our financial brain. 

Julie and I have irrational beliefs about money, which have lessened over time.  Julie has had concerns that we will not have enough money despite evidence to the contrary.  My irrational feelings are odd.  I always panic a little when it comes to paying bills. This is despite the fact that I completely pay out bills every month. I also feel guilty when I have a large charge card statement, even if the purchases were absolutely necessary.  I experienced that phenomenon this month as my charge bill was multi-thousands of dollars.  Did I buy a super-expensive item? No.  Did I book a trip? No.  The bills centered on additional costs due to Julie’s hospitalization, various expensive car repairs, and buying items to equip our home for Julie’s disability. The only splurge was that I bought more prepared meals from Costco, as I didn’t have the emotional bandwidth to cook multiple meals from scratch this month.  FYI, I always totally pay off charge cards, including last month’s. 

We recognize that we approach money oddly and have worked to give our kids a more balanced view of spending and consumerism. It is clear that they don’t have the same hangups as we do and that they approach purchasing sensibly.

My kids don’t seem to have a strong attachment to things or status items. I can’t recall a single incident where one of them had to have something because of social pressure. They seem to make most purchases based on rational reasons. They don’t seem to need to “Keep up the Jones.”  They are secure in themselves and don’t see purchasing things as a way to prove their worth.  Of course, they have their interests, and they do purchase things.  However, they think carefully about what they buy.

Let me give you one recent example.  Son, William, loves his Airpods, which we gave him as a birthday present several years ago.  However, they are now malfunctioning and need to be replaced. He knew Prime Days was coming up, and instead of making an instant gratification purchase, he waited a few weeks for that sales event. Several different models of AirPods were available, and he evaluated value vs. features. He chose the model that best met his needs, in this case, the one at the mid-price point.

So, what did we do to raise our kids this way?  

Educating about money. We started to teach them early about money. When they would come with us to the grocer, we would compare the prices of items, sometimes using a calculator for more confusing purchases. 

Demystified advertising. We taught them that the primary purpose of advertising was to make you feel bad about yourself and to offer a solution in the form of a product or service. We looked at how advertising went well beyond commercials and could be found in everything from product placement to Instagram posts.  

Meeting needs.  If our kids needed anything, we made sure that they had it.  This was for needs, not wants. They never felt insecure about not having what they needed.

Bucking the trends. Styles, trends, and even colors frequently change to get you to buy more.  Last year’s fabulous grey is today’s cold, impersonal color. You can’t avoid trends, but you can be more sensible in how you approach them.

Delaying gratification. Does saving and buying a better product make more sense than getting a junky item now?  Can you wait until your birthday or Christmas and get the item as a gift?

Credit card sense.  No one gives you money for free.  Credit cards are traps if you don’t pay them off every month.  If you can’t do that, don’t buy the item. Who wants to pay decades of minimal payments for a nice meal that has since gone down the toilet?

Taking ownership. We are willing to buy a replacement phone for our kids, but what if they want a more expensive model?  Is it important enough for them to pay the difference?  If so, by all means, they should get it.  They were often happy to settle on the lesser model they got “free” from us. 

Buy less, but buy better.  Value is more than getting the lowest price.  A product that performs better or lasts longer is a wiser purchase than buying something that quickly breaks or doesn’t do the job.  Often the best value is a mid-tier item, although rarely it makes sense to go for a top-of-the-line item.  Designer items are almost never worth it.  

Julie gifted me a top-of-the-line Kitchen Aid mixer in 1994, which has been used constantly since then.  It was worth every penny.  However, I have a mid-tier Instant Pot.  It doesn’t have all of the programs and features that a top-tier model would have, but it is built the same and does exactly what I need it to do.  

Their money vs. our money.  When it comes to unnecessary purchases, the attitude change is amazing when it involves who is paying for it.  When kids control their money, they are much more likely to choose wisely or not buy an item. 

Emphasizing brand disloyalty.  A brand-name product may be objectively better, but a house brand may be good enough.  Humans build preferences based on familiarity rather than rationality. Heinz Catsup is a good product, but many house brands are also good; they may just have a slightly different spice formulation. Being flexible allows for getting the best value.

DIY when possible, pay when needed.  I have shown my kids how to fix stuff and make basic things. However, for some items, it makes sense to pay someone to fix them.  Always balance the repair cost with the product’s future longevity. 

Being a skilled person. One of the reasons that I have spent so much time with my kids cooking is so they would feel comfortable tackling any cooking task.  They are not forced to buy crappy fast food or go to expensive restaurants. If you have basic skills, you also have more choices.

Making rational, researched decisions. My kids are academically gifted and were accepted to top universities. However, excellent schools one tier down wanted them and were willing to pay them to attend as their test scores and grades would boost the school’s rankings.  We researched the topic and determined that attending an excellent but less prestigious school would not impact their future opportunities. They all decided to go with practical rather than expensive choices and left college debt free. We did have college funds for our kids, but they would not cover the entire cost of room and board at a prestigious university.  All of them graduated college with money left in their college funds.

Money and stuff do not equal happiness. Of course, you need money, but there is a point where additional money does not make your life better. Excessive stuff can be a burden rather than a blessing.  It is better to look for balance in life.  

Self-esteem comes from within. We focused on building their self-esteem vs. focusing them on external things (like being popular or having stuff) as the source of feeling good about themselves. 

Finding one’s style. We also had them look rationally at ways to be conservative with their cash.  Yes, some people save a lot of money by clipping coupons or spending countless hours trying to get the best deal, but is that something they want to do?  Perhaps yes, likely no.  There is an intersection between effort vs. gain.

So what is the TLDR?  Teach your kids about money.  Teach them that stuff alone does equate to happiness.  Teach them what the concept of value means.  Build self-esteem. Allow them to think differently from some of their peers. Give them appropriate control and decision-making around money issues. 

You may find the writings of U of C economist Richard Thaler interesting.  He won the Nobel Prize in Economics in 2017 based on his theory of Behavioral Economics.  Thaler’s work rebuked former theories that assumed humans were rational when making financial decisions. Most humans use shortcuts in financial decision-making, often making erroneous decisions based on emotional biases.  Here are some ways emotions get in the way of making rational money decisions.

Sunk Cost Fallacy.  People use an emotional balance sheet when making money decisions. If they have invested in something, they sometimes do irrational things to justify it.  A simple example would be paying for a movie that turns out to be terrible. The money is spent, so many will waste 2 hours of their lives to “get their money’s worth.”  Much better to get up and leave. 

This rationale can be costly.  Let’s say you buy a used car that turns out to be a lemon. It is a constant source of financial and emotional stress, but you have already invested in the purchase price and expensive repairs.  The repair bills keep coming, and now you are spending much more on the car than it is worth. Some will continue to “throw good money after bad” because of this concept.

Companies exploit Sunk Cost Fallacy to get you to buy more.  Did you pay $120 for a Costco membership?  Folks will overspend there to ensure they got their money’s worth for the membership.  

Endowment Effect.  We make financial decisions based on whether we already own something.  Let’s say you found a poster in your basement.  The poster doesn’t do much for you; you would never buy it. However, you discover that it is rare and worth $2000. You decide to hang it on your wall instead of selling it.  Your ownership of the poster changes the way you view its value. Your emotions have prevented you from selling it for  $2000 despite the fact that it doesn’t improve your life.  

Mental Accounting. Money is money; there are no different types of dollars, but we don’t see money that way.  Let’s say you get a nice cash birthday gift or you win a small Lotto prize.  People are more likely to spend that money on frivolous or unnecessary things.  Money is fungible; a dollar is a dollar.

Transaction Utility. This involves the pleasure that we gain from getting a bargain.  It is often used to manipulate someone to buy something or to buy more.  Inflated MSRPs are a good example.  You go into a store to buy something and are convinced to do so because the store’s price is much better than the item’s fake MSRP.  Some people can become addicted to getting a bargain and fill their house with items they don’t need or use because it gives them that little dopamine rush.


Money is something to get us what we need to survive and enjoy life.  However, we are often manipulated to see stuff as a way to achieve status or happiness.  People go into debt to keep up with the Jones with the resultant stress caused by unnecessary purchases. If we could separate our emotional and financial selves, our lives would be better.  However, many want our money and will use known manipulations to make us believe we should overspend.  In the end, those are the people laughing all the way to the bank.



Making coffee instead of buying a cup can save you significant cash over time.