An Effective Way To Teach Kids About The Value Of Money

A few days after my daughters turn 5, I’m going to walk into their rooms and make an announcement: “You don’t live here for free anymore.”

Five may seem a little young to start teaching kids about the value of money. But when fully considering what parents are up against, it really isn’t.

It’s no secret that kids are spending an increasing amount of time online. Common Sense Media published a survey in March 2022, finding that tweens (8 to 12-year-olds) increased screen time by 17% from 2019 to 2021. The pandemic obviously played a major role in the jump, but there’s not much evidence that online and social media engagement has come down since.

For parents, this means that YouTube and a hodgepodge of online influencers are routinely delivering fresh ideas for toys, games, and products to your kids. My older sister, who has an eight and a ten-year-old, told me her kids routinely ask for MacBooks, but they also have no problem stretching their imagination to far more expensive acquisitions: an entire room devoted to gaming, a $300 Barbie RV Camper, and an all-expenses paid trip to Maui.

Naturally, the kids got all of these ideas online.

Online services are prohibited from collecting data from kids under 13, and they’re not supposed to target them with ads. But recent research from Adalytics found that “YouTube appears to be setting or transmitting ‘advertising’ cookies and identifiers on the devices of viewers who are watching ‘made for kids’ videos as of July 2023.”

An hour spent watching “Kids Diana Show” or “CoCoMelon Nursery Rhymes & Kids Songs” on YouTube could mean your kids are seeing ads they aren’t supposed to. This clearly violates The Children’s Online Privacy Protection Act (COPPA), but it’s happening anyway.

If companies are skirting COPPA now, the rise of artificial intelligence seems destined to diminish whatever guardrails remain between kids and advertisements. Parents should assume their kids are going to interact with far more online marketing campaigns and ads than you want them to.

Parents could attempt to exert more control over what their kids see online, but that feels like a losing battle. Artificial intelligence is getting more powerful by the day.

A better approach for parents is to give kids the tools and the knowledge they need to navigate the consumption-driven world they’re inhabiting online.

Teaching Kids a Version of the Scarcity Principle

I’m teaching my daughters about the scarcity principle, which says that the less of something there is (that’s in demand), the more valuable it becomes.

In business, scarcity value is often tied to innovation, intellectual property, and cutting-edge technology. Think: Nvidia’s semiconductor chips, Apple’s
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iPhones, breakthrough drugs, etc. These are all products that only certain companies can make, but that consumers and companies across the global economy want and need. The economic benefits of scarcity value can be tremendous—Apple and Nvidia are two of the most valuable companies in the world.

In other cases, scarcity value is manufactured deliberately. This can come in the form of a marketing campaign to create value where it wouldn’t otherwise exist. For example, a North Face puffer jacket normally retails for about $300. But if it’s a limited edition Supreme puffer jacket, it sells for way more. I recently found one listed on eBay for $15,000!

This concept of ‘manufactured scarcity’ is a psychological trick parents can borrow from. Many parents already do. A modest allowance that requires chores and negotiations for raises is a version of the scarcity principle at work.

Another application of the scarcity principle could be to tell your kids that everything they ask for is “too expensive,” but that sends the wrong message. The iPad and the thousands of Robux they want are in fact within reach—their purchase just has to be facilitated by a process that requires a lot of work and planning.

In other words, kids should know – and be reminded constantly – that every discretionary purchase impacts the family’s finances and is therefore a really big deal, even if it mathematically isn’t.

Every time a kid asks for something new—which is to say, all the time—it’s a recurring opportunity for parents to inflate the item’s value relative to the impact it will have on the family’s budget for that week or month. This can spur educational conversations about the relationship between work, income, and monthly budgeting, and kids can also start to map out the relationship between how much something costs and how much it’s worth.

These conversations can also pull back the curtain on financial planning concepts, like how spending those dollars affects a family’s ability to save and do other meaningful things in the future, like travel.

A great idea I once heard is to reserve a single day of the month to hear what kids want, and then to assign another day in the future to do the shopping for the ‘affordable items.’ This approach renders spur-of-the-moment requests as complete non-starters. But it also creates time and a forum that parents can use to remind kids—over and over and over again—of all the working, saving, and planning that has to happen in the days in between to make the purchases possible.