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"How To Raise Financially Responsible Children"

The best predictor of how financially successful your children will be in life may not be an IQ test or SAT score, but how long they can resist popping marshmallows into their mouths.

Stanford researcher Walter Mischel began his research on the long-term effects of delayed gratification in the 1960s. He studied the behavior of 4 year olds tempted by plates of marshmallows. Mischel's team asked kids not to eat marshmallows left on a table until an adult returned to the room 15 minutes later, at which time they were told they'd each be allowed to eat two. As expected, some children ate a marshmallow right away. Some waited a while before giving in. Some were able to wait the full 15 minutes.

Mischel followed the children until after they graduated from high school. He discovered that delayed gratification at an early age ended up with higher incomes, more successful marriages, greater career satisfaction, better health and more fulfilling lives. The quick marshmallow grabbers continued to struggle to subordinate impulses and exhibited behavioral problems. The study found that the children who waited 15 minutes for marshmallows scored 210 points higher on SAT tests than the children who could wait only 30 seconds.

As parents (my own son is still a toddler) we obviously want to nail the important lessons, like this one about the value of delayed gratification. Experience, rather than lectures, is the way to drive the point home. Here are two simple ideas to help your children learn this important lesson:

Give your kids real money to manage: In her book, Raising Money-Wise Kids, Judith Briles encourages parents to provide children with hands-on money management experience. She suggests encouraging them to save 20% to 25% of all the money they receive from allowances, gifts and work. The rest they can spend, with limitations based on your family's values.

One of our financial educators gave her two sons the dollar equivalent of their age each week in allowance from the time they entered fifth grade. They were required to put half of it into a savings account and use the other half to pay for personal care items, entertainment and gifts. If they wanted to go to the movies, the ticket was on them.

The mother noticed that her kids started cutting their own hair, trading in their used videogames and shunning costly new releases. The kids seemed to enjoy stretching their dollars, and the mother loved that they never asked her for money.

Whether they earn money through work or receive it as an allowance, giving kids responsibility for managing money provides them with an opportunity to learn about the consequence of their choices. Allowing them to make mistakes will teach them the importance of saving, as well as what it means to do without.

Teach the art of waiting: To children, delayed gratification means learning how to control their emotional reactions. One way to do this is to use a "want list."

Danielle Aguiar, founder and chief executive of My Smart Budget, had a son who often wanted to buy things on impulse. She thought that if he waited a week or two, whatever object he'd desired would be replaced by another. The idea of the "want list" was born. He made a list of things he wanted and if in two weeks time the top items remained on top, he was allowed to buy it.

Little did the boy know that he was receiving training in riding the emotional roller coaster of wanting something but learning to wait for it. As this process repeated itself, he developed patience to make better financial decisions.

Because my son is so cute (yes, I am biased), I know as much as anyone the desire to give in to a child's every wish. But ultimately I know we'll both get more gratification in the long run if in a few years I'm able to leave my son in a room by himself and come back to a table full of marshmallows.

Liz Davidson is CEO of Financial Finesse , a provider of financial education for employers nationwide.

Posted via email from lillian’s posterous

Posted via email from lillian’s posterous

Posted via email from lillian’s posterous