By Luke Erickson

It’s a new year! Here’s another article about setting and reaching your new year’s goals and resolutions! Just kidding, it’s totally not. In fact, it’s very much the opposite. I’m here to tell you that you should instead focus on failure. Yes, really. For starters, a typical parent will experience feelings of failure at least 9 days out of 10 (okay, maybe that’s just me). But I’m here to tell you that I think we should all just “embrace the fail.”

To be fair, failure should come as no surprise because we face a lot of unique challenges as parents. Things like Lego minefields lurking surreptitiously on the stairs at 3 a.m., or a wet bed at 3 a.m., or the words, “Dad, I just threw up” at 3 a.m. Yes, pretty much anything involving a child at 3 a.m. is not going to end well.

Add to all this the findings in a recent poll by Experian (one of the three major credit bureaus), showing that in spite of so many public efforts and millions of dollars spent to teach your kids personal finance in school, after school, church, scouts, or through apps, websites, videos, etc., that you — YES, YOU — the parents will be the primary source of financial education for your children throughout their lives. And in case you’re wondering, it is indeed a bad idea to try to fulfill this duty at 3 a.m.

Not long ago I was in a class in Gooding, Idaho, teaching middle schoolers about the merits of learning to save money while they are young. I also told them that according to research, they’ll likely learn far more from their parents about personal finances than from me and all their K-12 teachers put together. Then I asked if they thought their parents were up for the task of teaching them how to be successful with money. … Cue the crickets.

Now for the good news. Turns out that you don’t have to be perfect with your money to still be a good financial teacher to your little ones. In fact, you might actually be the best money teacher by letting your kids fail.

Say whaaat? That’s right, as any parent can attest, in so many cases kids insist on learning the hard way. And money is no exception. I have a (very unproven) theory that any particular child will make roughly the same amount of mistakes with money in their lifetime. The only real question is when these mistakes are made and how much they will cost.

So, when it comes to how our children handle money, I strongly believe that it’s better to let them make mistakes and learn from them while they are young rather than force them to always make good decisions. The other end of the spectrum is to keep the training wheels on, make their financial decisions for them, and when they grow up and (maybe) move out of the house, they make much bigger and more costly financial mistakes and then come crawling back to you asking for a bailout. Over-dramatic? Maybe, but you get the picture.

As an illustration, I present my own household, where I frequently use my own kids as guinea pigs to test financial theories. In our house we have decided to give our kids a weekly allowance. (More on the debate between allowance entitlements and chore-based allowances in future articles.) This allowance accumulates in an app we use to track their running balances. We also split their income into three categories for saving, giving and spending (you guessed it, I’ll talk more about this in the future). Ignoring the other categories for now, the real question is what we should allow the kids to spend their money on.

It’s a real challenge. My girls especially have an affinity for a certain category of toys which basically consist of cheap plastic figures that come in large plastic shells, but in the end are about the size of one of those 25 cent toys you can get from gumball machines. But instead of costing 25 cents, they can range anywhere from $2-$10 for a single figurine. Don’t worry, you can also buy them in packs of 3, 10, 50, etc., as long as you pony up the proportional bucks. Now, in the end this is my hard-earned money we’re talking about, right? Am I to sit idly by, whilst my children become conduits to such reckless and wanton spending in the name of “allowance”? In short, YES.

Well, I’m the supposed “expert” here, so let’s analyze the situation a little closer (trust me, there’s no such thing as a true expert when it comes to raising kids). While my wife and I don’t always agree, I tend to take the hands-off approach to the kids spending their allowance. In the end, I argue, pretty much anything they’re going to actually want to spend their money on is going to be a complete waste of money, in my opinion. Do you really think my 5-year-old is going to come to her mommy or daddy and say, “I could spend my money on cheap overpriced plastic toys, but instead I want to spend it on this educational workbook, and if there’s enough left over I’d like to get some extra vegetables”?

So, I do indeed let my kids buy cheap, overpriced plastic toys with their allowance. Guilty! BUT the important thing here is we talk through the process whenever they spend. I remind them of how much they have to spend. I remind them of other things they had mentioned before that they have said they wanted. We talk over how saving their money instead of spending it means they can save up for bigger and better things, and I give them examples. Keep in mind these “bigger and better” items are still just overpriced plastic garbage to me, but really what I’m doing is taking advantage of a teachable moment.

Will they learn these things at age 5? Or age 7? In my experience, not really. But amazingly I’ve noticed how my oldest is usually on the same page with me now when we talk over how he spends his money. He’s started to avoid impulse purchases and save up for bigger items. And, he’s even started to recognize that his spending can benefit others, not just himself: he’s purchased birthday and Christmas presents for others with his own spending money without us telling him to do it. This is the same kid who barely passed the marshmallow test (www.YouTube.com) at age 4 with a sweaty and tattered marshmallow.

So, I’m going to call this a victory, and hope that my theories on giving kids freedom to spend and fail will allow them to get some of those life mistakes out of the way while they’re young and the mistakes are relatively harmless. Now if you don’t mind, I know it’s early, but one of my kids is bound to wake up at 3 a.m. with some sort of crisis, so I’m going to go get some rest. Don’t worry, we’ll pick up those Legos later. What’s the worst that could happen?

Luke Erickson, Ph.D., AFC®, is an associate professor of personal finance for the University of Idaho. He lives and works in the Treasure Valley and frequently offers community and K-12 guest programs as part of his Extension and Outreach appointment. Luke and his wife Rachel have been married for 15 years and live in Meridian with their four beautiful and energetic children. He may be reached at erickson@uidaho.edu.

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1 Comment

  1. Leona Bacon on February 24, 2020 at 1:11 am

    Thank you Mr. Luke Erickson for your heartfelt, experince based,entertaining and teaching article titled, “A safe place for kids to fail financially.”
    I also feel like a failure, and have fallen to the Lego minefield.
    I am wide-eyed, deer-in-the-headlights terrified that I will be my childrens’ primary scource of financial education. I am flunking beautifully in that department and had fully bought into the delusions that my children would learn it better from somewhere other than me. However, I am already trying to let my children fail financially at home. My children’s income also comes from my income and since my income is quite smaill that means their income is quite small. I am looking forward to your future articles about the allowance debate and three income catagories. I have chosen to have some chores that they “get to do” because they are glad they have a house to live in and they have things that they need to take care of. Chores that thay do after these “house chores” are done can earn them money (or time on electronics or candy). I also encourage them to seek odd jobs or entrepreneurial ventures to earn money on their own. When they do earn money, we sit down and go over their finances. I also split the money into catagories so not all of the money gets to be spent on impuse buys. I also agree with your stand on allowing them to “waste” their money on things they want to spend their money on. Like you said, kids are NOT going to ask for a workbook and more vegetables. (LOL!!) How are they going to learn what is valuable enough to them and worthy of their time and money if they are not allowed to learn , to experience , to understand for themselves? God placed us here to experience, learn and grow. Mistakes will be made along that journey. But that is what the Atonement is for 🙂 So thank you very much for your wonderful article. Enjoy what rest you get, and cherish the 3 am crisis, for our children will be grown and gone before we know it 🙂

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