H&R BLOCK: DOLLLARS AND SENSE

Helping Your Children Fail

You nurture, support, and educate them. You take them to the doctor and the dentist. You buy them clothes, video games, and sports equipment. You drive them to practice, you let them borrow your stuff and you don’t think twice about making sacrifices so you can give them the best experiences possible. When they hurt, you hurt. When they win, you win. So why do you want to help them lose?

The fact is, we often learn more from losing than from winning. Some of our most valuable understandings and deepest insights are the result of analyzing and coming to terms with a bad decision. Research shows that millionaires experience approximately three major financial setbacks in their lives, while non-millionaires quit after just one. It is much easier to learn by experience than from instruction. Pain can be a powerful motivator if you see it as a message that things aren’t right, believe that you have the power to influence your situation, and are motivated to action. All of these mindsets can be demonstrated and taught to children so they understand how to dust off after failure and keep going.

So how do you help your children fail? The good news is that you won’t have to try too hard. Children tend to be impulsive when making financial decisions. Your job is to create a financial laboratory where they can experiment, make mistakes, and learn from them. This could involve:

Giving them an allowance and allowing them to run out of money and miss out on an important item or experience because they spent thoughtlessly or impulsively.

Having them pick $10,000 worth of stocks online and start tracking them. You can track your progress without actually purchasing the stocks. Watching the market move over a period of days, months and years can be quite revealing.

Loaning them money to make a big purchase or start a business – lawn moving for example – and charging them interest on the loan.

Whatever experiences you help structure, it is the period after the loss or disappointment that is most important. It is essential that you don’t bail them out or the lesson they will learn is “someone will fix it if I fail.” It is also critical that you do not make a financial failure a personal failure, but to examine it objectively and in the spirit of support and encouragement. Help them perform a financial audit where they can examine their decisions and the related emotions, and come up with strategies to do it differently next time. Helping your children fail financially can be the best lesson they ever learn. Better for them to lose early and lose small than to lose later and lose bigger.