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Teaching Your Kids About Money (Part I)

Personal Finance

There’s a group of preschoolers sitting at a table with one marshmallow in front of each of them. A trusted authority figure like a parent or a teacher displays a table containing more marshmallows and gives the children two options: they can eat the marshmallow that sits in front of them right now, or they can get another marshmallow—if they wait 20 minutes to eat the one in front of them.

This scene is from what most people refer to as the “Marshmallow Test.” It was administered in the 1960’s by Walter Mischel, a man who is considered one of the most influential psychologists in modern times.

After administering this test Mischel waited 20 years to follow up on the subjects of his test. According to The Economist, the ones who waited until they could have 2 marshmallows had higher academic success, better body-mass index, and a better overall psychological wellbeing.

How can this be applied to educating your child about finances? Encourage self-control when it comes to spending money. According to, the average American took home almost $67,000 before taxes in 2014. That equates to roughly $51,000 after taxes. Of that $51,000, the average American spends $53,000. You can see the full breakdown here.

Take a look at our interactive chart to see how that affects the average person's annual gross profit:

Average American Taxes, Expenses, and Debt | Create infographics

It doesn’t take long to see the average person has a very unsustainable financial situation. Luckily, since he first administered the test, Mischel has shown that delayed gratification can be “taught and enhanced.”

Here are two things you can do to teach your children how to combine delayed gratification with finances.

Teach your children to make long-term goals.

If your child earns an allowance, explain that they could buy something small today, but if they save their money they’ll be able to buy something larger at a later date. Be sure to encourage and praise your child while he’s waiting. If you wait, he may lose sight of his goal.

Teach your children the difference between “needs” and “wants.”

As a parent, you’re probably not making your young child work for his own food and clothing, but it’s good to talk with your child about how your family spends money and budgets the difference between “needs” and “wants.”

But how exactly do you talk to your kids about finances? We’ll discuss that next week in Part II.

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This is a good time look at your own finances to ensure you are following the principles you want your children to learn. To encourage your own savings today, consider opening an AGFinancial (link) investment. The rates are competitive and the funds invested help provide loans to grow ministry.

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