Does Making Money Less Real Change Your Behaviour?
How real is money in your world today?
As a dad with young children, I am finding my children's interaction with money very revealing.
Our children play a game of identifying various car brands whenever we go for a drive.
The other day, Elias said to me: “Daddy, I want a real Mercedes. I want it now. Can we go and buy it, please?”.
Even when I tried explaining to him that this was virtually impossible, he was more keen on wanting it now.
The concept of money and its quantum as I understood it, was very different for our 4-year-old.
You see, children think of money as a limitless resource. It just exists and is in abundance and can be spent as and whenever we want to.
Money is an illusion but with very real-life consequences for the one who engages with it.
As money becomes ever more digital, this illusion and abstract view of money becomes even more compounded.
Now here's the even more worrying bit, this illusion doesn't just exist for children but is also dominating the lives of many adults and with disastrous consequences.
I dug a bit deeper into this idea and came across the term of Financial Abstraction.
It is where money becomes less and less real, that it changes the way we interact with it on a regular basis.
This can cause a disconnect between the amount of money we have and the amount we spend because we use things like credit cards and smartphone apps to buy stuff.
Although I love technology, I also have a major beef with the ease with which we can spend money.
My wife received an Apple Watch as a birthday present recently. I was astonished to note that within 10 seconds of trying to set the watch up for her, I was being asked to set up Apple Pay.
The evidence is all around us.
Most bank cards are now contactless and children need only click a button whilst playing a game in order to buy all kinds of virtual goods.
Credit card spending is at an all-time high.
A recent study found that at least 70% of the UK’s working population are “chronically broke”, with many falling into credit card debt for everyday spending.
The Guardian reported recently that the average UK person owes £8,000 in debt and this excludes mortgage debt.
“Almost a quarter of all Brits said they were struggling to make ends meet, and 62% were worried about their levels of personal debt.
A third of those interviewed said they were already planning on taking on additional debt – in the form of credit cards, loans car finance, and mortgages – in the next year.”
I have known people to take on astronomical amounts of debt to buy homes in London, even with the knowledge that they don't have to live in London.
Something about money in the form of debt not being real causes a massive disconnect with many not considering the adverse effects on their lives for the many years to come.
A slightly different example was the recent flurry of buying cryptocurrencies.
Many were disconnected from the hard work it took to earn their money and instead were led to spending money at a click of a button based on hype.
The puzzling thing is – If money was more real, would people act differently? And be more conservative with spending?
I liken this to what happens when people inherit money rather than build wealth themselves.
One is a lot more likely to be less carefree if they were spending their own hard earned real money.
Watch this TED Talk by Adam Carroll on Financial Abstraction:
Why does all this matter?
On a personal level, I have a fear of our children growing up with a poor relationship with money and how to master it.
In fact, it is one of the private reasons why I write this blog.
On a broader level, the children of today will inevitably be running the show in years to come.
How prepared are you to pass on your acquired wisdom about money in a more digital world?
Do you see where this could go if we don't start to do something about it today?
Using the acronym REAL, below are 4 ways we can begin to make money real in our lives and that of our children –
1. Relevant
Make spending relevant to the world in which your children live.
Get them involved in shopping for school uniforms, doing the grocery shop etc.
This helps to reduce the already abstract view of money that children have wired into them by default.
2. Engaging
I recently got chatting to a smart 11-year-old about money:
Me: So, where does money come from?
Smart 11-year-old: Erm…I don't know.
Me: Where does your dad get money from?
Smart 11-year-old: From his boss.
Me: Where does his boss get the money from?
Smart 11-year-old: From his boss.
You can see where this is going. Nowhere.
What is clear is that dialogue is very important between adults and children.
I asked our son the same question, and he thought that money came from the bank.
Although this is technically correct and incorrect at the same time, it shows we have alot of work to do.
Research shows that engaging in positive experiences of money with children can lead to higher financial success in the future when they grow up.
The key is to start these experiences early and make them as frequent as possible.
3. Authentic
Keep things authentic and old school.
Given something like 4% of all the money in the world is in real cash and coins, it helps to sometimes bring some of that money into reality before a spend.
If you need to pay for something, take cash out once in a while and see how that changes yours or your child's behaviour in relation to an expense.
4. Life
Create a system in your life and home that works for you and helps you communicate the concept of value that money represents.
One thing we are exploring at the moment is practically getting our boys to interact with real money weekly.
This involves such things as rewards for good behaviour and having budgets for presents they buy their friends for parties.
Taking them along to the shop to make the purchase decision helps to bring money to life.
The other thing we do is encourage a savings culture at home, with each child owning and managing their own mini bank.
The more they get involved and add value around the house and at school, the bigger their pots grow.
Practicing the giving of real money also helps children understand that money is meant to flow out for it to flow back in again later.
To conclude,
By being compelled to take such deliberate steps, we're setting the next generation up for success.
Such steps will hopefully serve to make our children exude financial strength in a future world that's guaranteed to become ever less real.
Related:
- How To Get Your Kids Interested In Money Management
- Money Is In The Mind & Is Plain Vanilla
- 5 Debt Realities and What To Do About Them
- 15 Tips To Help You Stick To Your Budget
- How To Create A Budget That Works For You
- 10 DAY FREE: Practical Money Management Course
What do you do to make money real in your life? Is this changing your behaviour or decision making?
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.
Good post.
Keep sharing with us.
I love this post Ken. I’m struggling with these issues with my 10 yo and 7 yo, who want everything, immediately. Living in the South, kids are generally ‘spoilt’, in that they have all their basic needs catered for, have great things happening in their lives (lots of experiences and trips out), extended family always showering them with gifts etc, attend good state schools (we are very fortune around here for that) and have lots of friends through school who are financially fortunate and set the bar of expectation for my own kids. In this kind of environment, it’s hard to educate kids that their experience of money is not the same as many others, and that many of the things we all take for granted aren’t actually necessary at all. Combine that with the lack of basic financial education in schools and you have a rising generation with a disconnect around expectation, money and value.
Thank you for covering these issues, I always love reading your work!
Hi Tim
Thank you! I really appreciate you reading 🙂
Interesting reading your account with your kids. It really is challenging. One way I’m trying to solve this problem is through real-world experiences.
For example, rather than just visit Spain or Greece on hols all the time, we’d also visit other rather unpopular countries. We’re in Nigeria this Christmas for example, and part of my excitement is really down to the opportunity to immerse into local life in another country where things aren’t so easy.
I really think these types of experiences help children in the West grow up more balanced. Getting them into activities that involve children from other backgrounds is also another good way. For example, we are signing the boys up for music lessons…But the music school is in the heart of a non-trendy/deprived part of Hackney in London. ~50% of the attendees are children from low income homes. Such an environment just offers kids a different take.
Yet another option might be to get them involved with contributions to food banks. Even the thought of that will remind them that there are people out there who aren’t quite as well off.
It remains a big learning thing for us and will for years to come.
Ken