Kids and Money: 5 Ways to Instill Good Habits

Try it. You'll like it.

It's a lie that parents tell their kids all the time, and it's usually about food. But now there is evidence that even if kids don't like, say, an icky vegetable, if you can get them to keep sampling the food eventually they will grow to enjoy it.

And if it works with Brussels sprouts, why not with other distasteful things like budgets, saving and investing?

First, a word on vegetables. British scientist Jane Wardle found that kids ages 4-6 were willing to eat veggies they did not like if they were paid (in stickers) to do so. No real surprise there. Who wouldn't choke down their spinach for a Super Sticker Assortment? The shocker came later: three months after the bribes ended many of the toddler mercenaries were eating their peas for free.

Wardle's study was reported in the February issue of Psychological Science and you can find a nice take on it here. The broad implication is that by paying kids to do something that is good for them and which they otherwise would not do, the practice either becomes a good habit or they simply grow to enjoy it and will continue on their own.

This finding flies in the face of all kinds of evidence that pay for play, while a great motivator in the short run, rarely leads to actually enjoying an act you did not previously enjoy. In fact, Edward Deci, psychology professor at the University of Rochester, found the reverse to be true: stuff you enjoy becomes less enjoyable the minute you are paid to do it.

In a study, Deci looked at groups of people performing a variety of tasks they enjoyed, like working a jigsaw or crossword puzzle. He found that rewarding them for the task detracted from the experience. "There is significance to rewarding people," he told me. "You get them to do what you want them to do, but not what they want to do." Hence they stop doing it once the pay stops. Call it sticker shock.

And yet, at least with young kids and their veggies, paying seems to cement the beneficial behavior. Having eaten their mashed carrots for cash, kids later decide to eat more of them because they want to.

Why not try this magic on matters of personal finance? As desperate as we are for kids to eat their veggies, as a society we are infinitely more desperate for strategies to teach kids about money, lest they wind up like their parents -- tapped out on credit and under saved at retirement.

Get your youngsters into some good habits now, even if you must bribe them to get started in these key areas:

• Earning The first income most kids have is their allowance. Paying them to accept it doesn't make any sense, and I'm not one to tie allowance too closely to chores. But you can entice the kids to earn more than their weekly allowance by doing odd jobs that fall outside their normal responsibilities. If the veggie study is any indication, this will instill an entrepreneurial streak and closely link hard work with material reward.
• Saving Encourage your youngsters to save 15% (a good benchmark through adulthood) of every dime they receive by, well, paying them. Consider matching their long-term savings penny for penny.
• Spending Smart spending is as important as smart saving. When your kids are old enough to be making spending decisions, consider paying them to make at least one price comparison before buying. You might even offer them the difference if they find the same item somewhere else for less.

• Investing Young kids aren't going to peruse the stock charts. But as they get older you can encourage them to think about appropriate savings vehicles. Offer them $50 or possibly match their investment if they research which companies make the products they enjoy.
• Giving Again, I like the matching approach. Every youngster should have a jar designated for charity. Pay them to put something in it and to decide where they will give it away.