When it comes to making money decisions, kids are frequently impulsive.  In fact, when it comes to making most decisions, kids are impulsive.  It doesn’t matter if the choice involves money, food or friends, they often react without thinking.  Children simply aren’t born with the capacity for self-observation and the ability to control their impulses and make decisions based on weighing alternatives.   As financially intelligent parents, we need to teach our children how to think in terms of alternatives.  

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Thinking in terms of alternatives is called reflective thinking.  Learning how to reflect before making a decision is a great life skill, and the hallmark of people who make good choices in everything from careers to relationships and from purchases to investments.   Being able to reflect after you make a decision and learning from the consequences is another crucial life lesson.  In The Secure Child, Stanley Greenspan, M.D. observes that there are dozens of opportunities to engage your child in reflective thinking every day.   Greenspan describes the process of helping boys and girls develop the tools they need to engage in self-reflection as a gift, one that will enable them to become responsible citizens.  

Unlike some of the other money behaviors we’re suggesting you adopt, facilitating financial  reflection may seem less compelling on the surface.  If you look below the surface, however, you’ll understand how crucial reflection is in a child’s development.

THE MARSHMALLOW TEST

You might not connect marshmallows with the benefits of self-reflection, but a great deal of what we know about kids and impulse control stems from an experiment with marshmallows in the 1960s.  Psychologist Walter Mischel developed a test of emotional self-control that involved offering marshmallows to the four-year-old children of Stanford professors, graduate students and employees.  The kids were brought into a room at Stanford one by one and given a marshmallow.  They were told they could eat it then, but if they could wait for about 20 minutes until the researcher returned from a pretend errand, they would receive two marshmallows.  Researchers observed the children through a one-way mirror.  Some of them were able to wait the twenty minutes until the researcher returned and then received their second marshmallow.  They found ways to divert themselves from thinking about the marshmallow: some covered their eyes so they wouldn’t have to see the treat; others rested their heads in their arms, played games with their hands, sang songs or even tried to take a nap.  Others consumed the marshmallow as soon as the researcher left the room.  

Fourteen years later, the kids were interviewed.  The results were dramatic: the kids who were able to wait for the second marshmallow were, as eighteen year olds, more socially competent, less likely to go to pieces under stress, better able to deal with challenges, more self-reliant and, on average, scored 210 points higher on their SAT tests than those who were unable to delay gratification! 

 Why were some of the four-year-olds able to figure out that it was in their best interest to delay gratification and others were not?   And why did learning self-control at age four have such a dramatic effect on their lives as adolescents?  The answer, in a word, is reflection.  Parents taught the two-marshmallow kids to reflect on their feelings in terms of choices (“I can have one now, but I can have two later”), values (“I prioritize long-term gain over short-term satisfaction”) and consequences (“I will satisfy my hunger better if I wait versus satisfying it temporarily if I eat one immediately”).     These lessons last throughout the child’s life. 

We have found that financially intelligent parents teach their children to evaluate all their options rather than make impulsive decisions.  As a result, these children acquire the skills to make good choices.  Like the four-year-olds who were able to resist eating the marshmallow immediately, kids need to understand that, when it comes to money, there are other things to do than spend it immediately -- they can save it, they can invest it or they can give it to charity – and each has certain results. Stanley Greenspan has observed that children who develop the ability to engage in self-reflection and think in terms of choices and consequences grow into teenagers who “can solve problems and assess and evaluate their own impulses and desires.”   Teenagers without this ability to engage in self-reflection are “limited to their immediate and often impulsive reactions to events.” 

You can model reflective behavior in many ways—your decisions about careers, ethical matters and so on--but your money behaviors have a tremendous impact on children.  From the time they’re little, kids pay attention to how you determine the amount of an allowance, whether to buy a bigger house, or a choice between a luxurious family vacation and putting money away for a son’s or daughter’s tuba lessons.  If you exhibit reflective behavior, it provides a model not just for your child’s own money behaviors but for how she acts in all areas of her life. 

REFLECTING ON WHAT REFLECTION MEANS

Let’s take a moment and examine what reflection really entails. Your children learn to make choices by thinking reflectively.   When a person thinks reflectively, she is examining her thoughts, emotions, ideas and beliefs before she acts.   In other words, engaging in reflective thinking is having a conversation with yourself.   Reflective thinking after you act is just as important as reflecting before you act, especially when you made a mistake. You want to ask yourself such questions as: “Why did I do that?” and  “Do I feel good about what I did?”   James Joyce described mistakes as “the portal to opportunity.”   He meant that reflecting on mistakes allows you to learn from failure and generate fresh opportunities.  Kids learn valuable lessons by doing something stupid, reflecting on why they did it, and resolving not to repeat the same mistake. Or as Yogi Berra once famously noted, “I don’t want to make the wrong mistake again.” 

Our kids acquire the ability to think reflectively by observing how we  act when we are making choices and by having us engage them in reflective dialogues.   Reflective dialogues are conversations we have with our children that don’t simply deal with their behavior but also with their mental states and with choices and alternatives.  They are true conversations, not lectures.  In a reflective discussion, you don’t simply respond yes or no to your child’s questions or comments.  Instead, you ask what, when, why and how to help them form an opinion and reflect on their own wishes and ideas; this is the foundation of abstract thinking.

If you have young kids, facilitate these discussions by getting down on the floor with them.  Set aside perhaps 20 to 30 minutes every day for floor time.  Turn off the TV and turn on the answering machine.  Being at your kid’s level, eye to eye, generates a sense of equality.  During floor time, your child owns you.   Do whatever your child wants to do, even if it means playing the same game for the zillionth time.  There should be no rules except no hurting people and no breaking toys.  Let your child set the emotional tone of the play and follow his lead.  As you talk and play and interact, you are establishing an environment in which your child feels comfortable talking about anything.  This means that you can ask questions that allow your child to explore her mind and to think about alternatives.  You would be amazed at the dozens of opportunities for reflective thinking that arise.  For instance, you are reading Little Red Riding Hood to your five year old.  Ask him what would have happened if Little Red Riding Hood had gone straight to grandmother’s house and had not stopped to pick flowers. 

Stimulating financial reflection during these times is relatively easy, but you need to employ different methods with children of different ages.  With very small children, you can read them fairy tales or make up ones of your own devising to get them thinking about money choices.  “The Midas Touch” and “Rumplestilskin” are two examples of fairy tales that revolve around money issues.  Ask your child a question such as, “If you were able to turn everything into gold with a touch of your finger, how might you use that power to do good?” 

With kids a bit older, you might play board games such as Monopoly that involve financial transactions.  After the game is over, ask them what they thought the turning point of the game was that caused them to win or lose.  With hindsight, what might they have done differently? If the game had been real life, what might they have done differently, and why?  

With some pre-teens and adolescents, you probably don’t need the prop of a story or a game.  Instead, you can capitalize on the common money issues in their lives to prompt financial reflection.  Suppose they decide to spend a $50 birthday gift from Grandpa on CDs.  You might ask whether they would have spent the entire gift on CDs if Grandpa had given them $100.  Too often, parents prematurely cut off reflective discussions with yes or no answers: “Yes, you can have the money to buy the bike” or “No, I’m not going to spend money for you to go listen to that awful rock group perform.”  As difficult as it is to get teenagers to think and talk about certain subjects with you, money topics generally intrigue adolescents.  Before saying yes or no, throw out some questions that will cause your child to consider why they want to make a specific purchase or what other choices they might have given the money that is available or and other ways they might achieve their objectives

Once your child has a driver’s license and wants to borrow the car, don’t just say yes or no every time.  Instead, occasionally ask where he wants to go, whether his homework is done, and whether there is anything else he wants to accomplish today.  Asking your child these types of questions helps further reflection.