What kids’ actions can teach adults about money

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The children who came to my house on Halloween were not buying lottery tickets later in the week as Powerball jackpots soared.

Judging from how they acted during my annual “Cash or Candy/Trade or Treat” exercise, the kids would struggle with the disappointment of losing despite their hopes of winning.

That’s a lesson that some adults could learn from, and one of several interesting takeaways from my annual effort to use All Hallows Eve as a means of teaching children about money.

It was a fun night, talking with small children up to teenagers about money, value, risk, profits and losses; I change and refine things each year to keep it entertaining.

Just for coming to my door in costume, children earned three pieces of fun-sized candy or, instead, a $1 coin. But if they wanted something more, they could trade me two pieces of fun-sized candy for a chance to pick from two sets of envelopes:

 — “Safe-money” envelopes held between 25 cents and $7.50 each; cumulatively, they held $70 spread over 50 envelopes for an average value of $1.40 (and I told the children the value, noting that half of the pouches held just a quarter or 50-cent piece).

— “Lottery envelopes” had grand prizes of $20 and $10, but every other envelope was empty. With $30 spread through 50 chances, the average envelope contained 60 cents.

There’s some simple symmetry in those financial choices.

This year, thanks to inflation, fun-sized candies are worth 15 to 20 cents each, so let’s say that a child’s return on investment for coming to my house is 60 cents (I give away the good stuff!).

The average lottery envelope also was worth 60 cents, but kids had to give up two pieces of their Halloween currency to get it, dropping the average after the trade to just 20 cents.

Several risk-averse children said they would have played the lottery had the value been the same as the candy, but “the cost” of candy made a difference.

Those same kids quickly realized that while the dollar was the sure thing, trading two pieces of candy for the envelopes with the $1.40 average was a wash. At that point, the question was if they were willing to risk part of their earnings for coming to my door to play for something bigger.

While thinking out loud, the most common response I got was “Can I give you four pieces of candy to play twice, once with each envelope?”

Forced to make a decision, 19 children went for the lottery option (with one claiming the $10 second prize), 13 chose the safe-money envelope (and got lucky, collecting a combined $29 or roughly $2.25 per player), eight children took the dollar coin and five stuck with candy, though it seemed like they did that mostly to get on with gathering sweets rather than chat with me.

Children were told to take their envelope home and open it later, but many get just out of sight and can’t wait, so it’s not uncommon to hear the celebration of a win or the disappointment of surrendering a sure thing for a longshot.

As children in groups argued about what they did – “Why didn’t you take the sure thing?” “You’ve got lots of candy, why didn’t you try to win money?” — what becomes clear is that at this age, small dollars still have real value.

The children clearly understood that while winning a lot of money would be great, having a little bit is better than none, even if they learned it the hard way.

And if you look at what’s in your pocket as having value, you think about what it buys you before spending it.

Powerball players and other lottery customers should remember that.

No one should blame the lottery if they fail to reach their financial goals, either because they don’t win the drawings or because the money spent on tickets could have been saved.

But there is real money lost to decades of bad financial habits, like regular lottery purchases.

The average American spends roughly $315 per year on the lottery, according to an analysis this summer by GOBankingRates. With Mega Millions changing its system last year to include additional drawings and a way to pay more for a “second chance” drawing, it’s no surprise that number is way up from the most recent numbers from the U.S. Census Bureau, which pegged lottery spending at $232 per person in 2018.

At roughly $25 per month, that average lottery player can feel like they’re not blowing much money and they’re getting some entertainment value for their buck.

For most people, the lottery amounts to financial “leakage,” the vague idea that they run through cash a little faster than anticipated but can’t quite figure out where it is going.

The children, however, see money for what it is, an opportunity. And the lottery players — except for the kid who won $10 — felt like they missed a chance for something better.

 If they continue that kind of thinking as they mature, they will be savvy consumers with a healthy relationship with money.

 Too many people spend in ways that are wasteful and unnecessary. They look only at what they get, what they desire in the moment or what they “can’t live without,” only to learn later that desire was fleeting, they didn’t need it, didn’t use it and would have preferred to live without it if they could keep their cash.

Children pick up on the bad in parental money habits; they understand the spending without recognizing what goes into earning the money that was wasted.

 For all those kids who wanted to play twice on Halloween — giving them a chance to play it safe while taking the bigger risk for the larger potential reward – every financial decision is a learning opportunity.

 And we, in turn, can learn a lot from children and their attitudes towards money.

 Again this year, I certainly did.

Chuck Jaffe is a nationally syndicated financial columnist and the host of “Money Life with Chuck Jaffe.” You can reach him at itschuckjaffe@gmail.com and tune in at moneylifeshow.com.

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