Teaching frugal habits starts at home

The Pruett family of Bellingham, Washington, has been debating a major financial decision: how much to spend on a new car.

When Wade Pruett asked his two children—Soren, 8, and Odin, 11—what they wanted, they pushed for a Rivian. He quickly saw their enthusiasm fizzle when they saw the price range, with base models starting at $75,000.

“We’re not getting one of those,” he laughed, after seeing their reaction.

Wade and Alissa Pruett make a point of having constant talks about money with their children—something they started a few years ago by discussing the family budget.

Wade admits they didn’t think about budgeting until well after they had children. But once they realized the financial pressures of parenting, “we felt it was really important to share that concept with them sooner rather than later,” he said.

The Washington Post spoke with Pruetts, as well as two financial advisers, on effective lessons for teaching children the value of money.

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Put your money in the bank, not your pocket

Like most parents, the Pruetts provide a weekly allowance to both children, with each getting an amount equal to half their age. But instead of doling out cash, they place the money in a checking account, which has the effect of ensuring it’s not spent right away. When the children don’t see the money, “it accumulates,” Alissa Pruett said.

They also let their children earn extra cash by doing chores beyond what is normally expected of them. When their daughter was saving up for something she had her eye on, for example, she helped for a few weeks with loading the dishwasher to beef up her earnings.

More recently, the Pruetts introduced the idea of compound interest to their 11-year-old by using an online calculator and numbers he could understand. They’re planning to set up an interest-bearing account for him and want to make sure he understands what interest over time can do.

“We plugged in the numbers and said if you have this much and contribute a hundred [dollars] every year until you’re 65, look how much you’ll have,” Alissa Pruett said. “That was an ‘aha’ moment for him.”

When asked how he would explain compound interest to someone just learning about it, Odin had a ready answer: “It’s when I put money in the bank and if I just let it sit there and don’t spend it, and I keep adding to it, then it will grow faster because it’s building onto itself, like algae.”

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Understand trade-offs

When the children were old enough to ask for more expensive gifts and toys—like when Odin requested an Apple Watch—the Pruetts brought out their budget spreadsheet, listing spending in each category. They used it to introduce the concept of opportunity cost—that is, the trade-offs that come with each financial decision.

Wade explains they simplified the idea for the children this way: “If we buy that item that is twice as much, we’re not going to be able to buy something else.”

Now, when it comes to pricier requests, the Pruetts suggest to the children that they use their own allowance money. If the kids balk at that suggestion, Wade and Alissa tell them that they don’t want to spend their money, either. That moves the choice back to the children.

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Make mistakes and learn from them

Sometimes after those conversations, their children will go ahead with a purchase, like when Soren recently bought an expensive Lego set with her own money. She wound up regretting it because it didn’t live up to her expectations.

That was a useful lesson, Wade Pruett said.

“They have to feel the pain [of remorse] for it to process,” he explained.

John Chesbrough, a financial adviser with TrailFP, has worked with the Pruetts and agrees that letting children make mistakes with money—within reason—helps instill responsibility.

“If you’re going to teach agency to people, you have to really give them agency to make mistakes and to make successes,” he said.

Huyen Nguyen, a financial adviser at Inclusive Wealth, also emphasizes the value of mistakes. She recommends to parents that they list what their best and worst financial decisions ever were—and then ask themselves what drove those decisions so that they can understand what to pass on to their children.

“That [understanding] will flow into how you can be in control of money—not letting money be in control of you,” she said.

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Set priorities and make decisions in real time

The Pruetts often use errands and shopping runs to start spontaneous conversations about spending so that their children can learn to make decisions quickly when they need to.

For example, at the local consignment shop where they drop off clothes, the Pruetts make sure their children see the salespeople carefully picking out suitable clothes for resale, so they know the items on the racks are in good condition while costing a fraction of brand new clothes, Wade said.

Another savings trick that their adviser, Chesbrough, recommends is a method he calls “keep the change.” If he gives his children money for a nonessential purchase, he hands over enough to cover the cost but tells them to keep the change. That promptly forces his children to bargain-hunt so that they can pocket whatever savings they can find.

“You’ll notice their buying decisions just totally shift,” Chesbrough said. “They don’t order a drink [at a restaurant]. They’re happy with water.”

Beyond the day-to-day, Nguyen suggests parents help children make a list of items they want to purchase and number them in order of priority. Then after waiting for some time, the children revisit the list to see if their wish list has changed. That way, they make the connection between how much money is in the bank and how they can use it for purchases that are meaningful over the longer run, she explained.

Looking at all these strategies, Alissa Pruett emphasizes that she doesn’t want to introduce stress—it’s about ensuring her children are well-educated.

“Growing up we got an allowance, [but] we didn’t talk a lot about money,” she recalled. “I had no idea how much things cost.”