As I am off in California this week, I am more than thrilled to post an essay from my guest, John Lanza. John is the author of the “Money Mammals” books, which I have reviewed. Thanks for contributing, John!

Of Marshmallows and Money

By now, we’ve all heard of the Marshmallow Study by Walter Mischel. You know, the one in which kids who could resist a marshmallow for a period of time would be rewarded with an additional marshmallow to eat. Mischel then followed up his work years later and found that those kids who developed strategies to delay their immediate gratification had been more successful. The studies suggest that learning strategies to delay gratification can help kids later in life. There are elements of the study and what it demonstrates that have been called into question, but both the original study and Mischel’s follow up study are intriguing.

I wanted to touch on this in the context of financial literacy. As the creator of The Money Mammals and a frequent contributor to blogs and debates on the subject of financial literacy, I find certain issues crop up consistently. One is that many parents equate delayed gratification to not spending money at all. I’ve spoken with many parents who suggest that saving for a “rainy day” in an account that can’t be touched is the way to go. It’s essential that we rethink this. Spending money is a part of life — kids need to be comfortable with handling and spending money. Although it’s important to protect ourselves from our own spending habits by keeping money at bay in a savings account that can’t be touched, socking too much or all the money kids are receiving in an account isn’t necessarily going to teach them anything. What will they do when they eventually get their hands on it and they’ve had no experience with spending money in the first place? In addition, younger kids are likely to find the idea of saving money for a rainy day too abstract.

I’ve found that having kids set spending goals can be a very effective way of teaching delayed gratification with a true, understandable end game — even for a five-year-old. My daughter was so proud when she saved eight weeks of allowance to buy a scooter. It was the first monetary savings goal she achieved! Although she had a credit union account with an awesome “starter” interest rate of 5% for the first 500 bucks, the 20 cents she would have earned from that money in the same period would have left her… Well, let’s just say she would have preferred two marshmallows.

I think all parents find themselves a little worried at the beginning of the financial literacy teaching process with the concept of giving our kids too much autonomy over their money. I know I was! This is understandable, because that’s what we do as parents — we worry. We’ll worry when our kids go on their first dates, drive their first car, head off to college and more. That doesn’t mean that we’ll keep them from doing these things, though I wish they’d delay that dating gratification as long as possible. Ultimately, though, we know we must raise kids to the best of our ability and trust them to make smart choices by giving them experience with those choices. We’ve all learned our own financial lessons by handling money. Advice is good, but real world experience is the best teacher.

April is Financial Literacy Month (or National Financial Capability Month, as President Obama has decreed). April 23rd is National Teach Your Child to Save Day. Let’s all use this opportunity to get our kids to learn about saving by having them set a goal to spend their money on something they might want. Here’s an additional idea… As a reward, get a bag of marshmallows, a box of graham crackers and some chocolate. I wonder if those kids in Michel’s study could have delayed their gratification if they’d had s’mores in front of them.

Happy Financial Literacy Month!

John’s Bio: