Teach kids money lessons with back-to-school shopping

Gregory Karp
Chicago Tribune

Back-to-school shopping represents one of the best opportunities all year for students to learn a few lessons before they return to the classroom — money lessons, that is.

“When they reach their high school years, kids have to be prepared to do some comparison shopping and live within a budget, because they’re going off on their own in three to five years and they need to be prepared,” said Steve Economides, who with wife, Annette, heads America’s cheapest family, runs moneysmartfamily.com and has written books including “The MoneySmart Family System.”

“We’re not raising kids; we’re raising future adults.”

Americans will spend $68 billion during this year’s back-to-school season, including back-to-college, according to the National Retail Federation. That’s an average of $630 per family for school-age kids and $899 for families with college-bound students.

While the back-to-school drill can be stressful for parents, including some money lessons is worthwhile, experts said.

“You don’t want to overwhelm your kid, so you have to be sensitive to who your kid is and what they’re going to be taking on,” said Annette Economides. “But if they can handle learning a new system, and you can handle implementing it, it’s a great time.”

Part of the reason it works is because kids care about school shopping, said Patricia A. Seaman, a spokeswoman for the National Endowment for Financial Education.

“Back-to-school shopping, like all shopping, is a teachable moment for kids and money, and they have a vested interest in the outcomes since they are the ones who have to carry the backpacks and wear the clothes they have chosen for the upcoming year,” she said.

It turns out kids really need those lessons. Despite a high-profile focus on financial literacy in the U.S., teens generally are not excelling when it comes to money knowledge.

An international report released last year showed about 18 percent of U.S. 15-year-olds didn’t reach a baseline level of proficiency in financial literacy, according to an assessment by the Organization for Economic Cooperation and Development. U.S. teens ranked below average and well behind those from China, Belgium and Estonia.

Here are some ideas for schooling your kids about money through shopping.

■Budgeting. A spending plan is fundamental for using money wisely, so the process doesn’t start with a trip to the mall but with a conversation. Take inventory of what they need, typically school supplies and clothes.

“Work with your child to make a list of everything he or she wants and needs for school and how much it costs,” Seaman said. But mom and dad should have veto power over purchases.

■Needs vs. wants. The difference between needs and wants may be the most important lesson of all for kids.

“You need a backpack; you want one with the Avengers on it,” Seaman said. “Challenge your children when they say ‘I want.’ Have them find the basic version of what they want and discuss how it will fulfill their needs.”

It’s time to talk about how wanting things is natural, but that some people define themselves by what they buy — and how keeping up with the Joneses is a race they cannot win.

For upgrades beyond the functional choices and their budgeted amounts, require the child to contribute their own money. On average, teens this year will contribute $33.27, and preteens will spend $17.57, according to the retail federation.

■Lands’ End rule. Clothing is a necessity, but high-end sweaters are not. Where do you draw the line?

One answer is the Lands’ End rule, which Ron Lieber suggests in his book, “The Opposite of Spoiled: Raising Kids who are Grounded, Generous and Smart About Money.”

Lieber argues that Lands’ End is known for quality apparel but not pricey high fashion. If a child wants a pair of expensive jeans, parents might pay whatever Lands’ End charges, and the child must pay the difference. The benchmark retailer is up to parents; they can instead choose to draw the line at prices from Target or Nordstrom.

■Comparison shopping. Looking up prices online before heading to the mall will give you and your child an idea of the price range for that item. Incorporating secondhand stores into the shopping process is a great lesson too — especially for clothes or sporting equipment. It makes you think about the extreme markup for new items.

■Trade-offs. Shopping on a budget allows older children to experience the concept of opportunity costs, or trade-offs — how buying one item limits their ability to buy others. It’s the “money doesn’t grow on trees” lesson.

Introduce scenarios in which children must choose between competing spending priorities. “Do you want the $100 sneakers or a moderately priced pair and an extra pair of jeans?”

■Seeking value. “The cheapest isn’t always the best buy, and price isn’t always the best indicator of quality,” Seaman said. Examine merchandise with your child and talk about how well it’s made and how long it’s likely to last.

For clothing, introduce the concept of “cost per wear.” By that measure, a $100 pair of jeans worn 40 times during the school year is far cheaper than a $40 pair worn three times.

■Single-item lessons. With a younger child, you might teach a money lesson on a single back-to-school purchase, like shoes, instead of the whole shopping event, Steve Economides said. Set a budget and help them do the comparison shopping.

■Overspending. “Don’t bail out your kids if they overspend; instead, take them back to the store to return the items that blew the budget,” Seaman said. You could even introduce the concept of credit, borrowing money from you but paying it back with interest: “You can have this fancy binder, but it will cost you $7 instead of $5 when you pay me back,” she said.

Talk about how to resist impulse buys, delay gratification and not succumb to marketing messages.

■Look ahead. Beyond needs for the first day of school are expenses while school is in session. Forecast what expenses are likely to crop up during the school year, like new cleats for baseball or soccer, spending money for a school trip or cash for prom.

■Working it. It’s also a good time to talk about the other side of the money ledger, the earning side. That could mean doing extra household chores for pay or, for older teens, getting a job.

“The senior year expenses are a killer,” Annette Economides said. “In junior year, they should surely have a job by then because in their senior year they have yearbook, class rings, senior pictures, prom. And they really should have some skin in the game for most of that, if not all of it.”

■Spend cash. Studies show that using credit or debit cards leads consumers to overspend because it takes away some of the psychological pain of handing over hard currency. Back-to-school shopping with cash might be more of a hassle, but it might also make an impression as children see the bills going from a wallet to cashier.

And for older children doing their own school shopping, give them cash and tell them as long as they get everything on their list, they can keep whatever is left.

Then you’ll see some smart spending.