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The Power of Starting the Right Money Habits Early

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Written by: Abby Kovach, CFP®Abby Kovach Financial Planning

As a financial planner and mom of two elementary school age kids, I’m constantly searching for ways to prepare my daughter and son to live in a world where there will be less and less space between the desire to buy and the delivery (soon by drone!) of the new possession. With the possibility of instantaneous gratification so available, how can I teach them to carve out time to reflect on the value of a purchase? How will they learn to slow down, delay gratification, and weigh the value of saving money in comparison to spending it?

It’s hard. Emotions are powerful, and we can’t always trust the rational parts of our brains to win out. Anyone who’s ever tried a restrictive diet knows that you can only limit yourself to grapefruit for a certain amount of time. After awhile, you cave in and eat a box of cookies.

But what if there were a way to program our kids to make smart choices now and in the future without relying on will power or setting them up to feel deprived? The key might be as simple as catching our kids at a very young age and helping them form the right habits, just like Sammy Rabbit’s parents and Auntie Squirrel have done in Sam X Renick’s powerful financial literacy tools.

In his 2014 book, The Power of Habit: Why We Do What We Do in Life and Business, Charles Duhigg explains the habit loop and why it has such a strong influence on our behavior. Duhigg tells the story of brains that have evolved to save effort by storing a set of actions, or routines, that allows us to complete repetitive tasks without consciously thinking about what we’re doing. When we get a specific cue, we automatically perform the routine and receive some type of reward. Over time, the loop becomes part of our brain’s neurological structure.

Related: Kids, Money and Growing up with a Super Bowl Father

According to Duhigg’s review of the research, an interesting thing happens as a new habit solidifies. The brain begins to anticipate the reward, and when the cue comes, we can feel an almost overwhelming craving. This craving propels us to perform our routine in (often unconscious) anticipation of the reward.

While it’s possible to modify old habits and replace them with new habits, Duhigg tells us that the old cue–routine–reward circuitry never goes away. Given the right circumstances, the original cue can produce the craving and drive a person right back into the old loop.

Great money habits

How much better off would our kids be if we helped them develop positive cue-routine- reward loops from the very beginning? Consider the following examples:

Max
Cue: I see something I want.
Routine: I use whatever money is available, whether earned, given, or borrowed, and I buy it.
Reward: I get a charge from my new and exciting possession or experience.

Next time I get the cue, I begin to crave the thrill of a new possession. Rinse and repeat. My routine becomes more automatic and harder to resist, to the point where my spending may compromise my future well-being.

Sophia
Cue: I see something I want.
Routine: Like Sammy Rabbit, I work to earn the money and save $0.10 for every dollar.
Reward: I get to spend some now, but I also build a reserve for spending on future needs, wants, opportunities, or experiences that I may or may not even be aware of right now.

Wouldn’t it be great if all kids had Sophia’s habit loop?

The only problem with Sophia’s example is that, as the behavioral finance experts have taught us, our brains cannot accurately perceive the value of future rewards. It’s human. A future reward needs to be many times more valuable than an immediate reward for us to crave it the way we crave the immediate reward. So, how can we make the habit loop work to support positive money habits that get us to bigger, long-term goals?

Once again, Sammy and his family knock it out of the park using two important tactics that all kids can learn. First, Sammy picks a very big dream. Imagining himself riding that space roller coaster is enough to give him goosebumps. Suddenly, the craving for that big future reward makes it possible for him to do his work/save routine and pass up small rewards like ice cream, candy, and baseball caps!

Second, I’m willing to bet that Sammy gets a little burst of happiness every time he adds some money to his bank account. That little thrill is the kind of intrinsic reward that we want our kids to experience. That feeling, in itself, is a motivating reward their brains can come to anticipate. When they get some money (cue), and save part of it (routine), they feel great (reward)!

Returning to The Power of Habit, I have a strong suspicion that saving may very well be what Duhigg refers to as a “keystone habit”. According to the book, keystone habits are core habits that facilitate all kinds of other habits that lead to success. By starting very small and building on one success after another, kids learn that their actions make a difference and they can be agents of change in their own lives and the lives of others – not just with saving, but with dreaming big dreams of all kinds and seeing them become reality.

Forming great money habits from the very beginning is so much easier than trying to go back and break bad habits later. Kudos and much gratitude to Sam X Renick for all he does to empower our future dreamers and leaders.

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