Short of bequeathing them so much money ($150 million each should do it) that they never have to worry about their finances, there are few gifts you can give your kids that could be more valuable than the skills and attitudes they need to be great money managers.
By the time they reach their mid-teens, you can pretty much see how their financial lives are going to pan out: Mary and Bob are forever borrowing against next week’s allowance, while Tom and Jennifer have a thriving schoolyard loansharking business and robust balances in their savings accounts.
Often you don’t have to wait for kids to hit puberty before you begin to spot the signs of competent or catastrophic attitudes to cash. One day you’re changing their diaper, and the next, it feels, you’re either lending them a couple of dollars or raiding their piggy banks. And, sometimes, siblings in the same family have very different money habits, even though they’ve all been brought up with the same financial norms, advice and education.
Genes, Elephants and Money
We’re a long way from discovering the money gene, but last year Chase published an academic study that asked whether we all leave our mothers’ wombs with our financial skills and attitudes pre-programmed. In “Born to Spend?” Professor Hersh Shefrin differentiated between two types of thought processes: “Fast thinking” tends to be instinctual, while “slow thinking” is more strategic.
Shefrin suggests a metaphor: An elephant works almost entirely instinctively, moving around in response to external stimuli, such as food, water or a mate. Train an elephant, and put a human driver (a “mahout”) on its back, and — even though it’s much more powerful than the person — it can be made to carry out complex tasks. Left to its own devices, the elephant uses fast-thinking processes, but the mahout provides a higher level of (slow) thinking.
Extend that metaphor to humans, and some of us are born with highly skilled mahouts, who guide us to make smart, counter-instinctive financial decisions, and some of us are born with weak mahouts who stand no chance of controlling our much more powerful elephantine impulses.
Which sort of elephant driver we get has nothing to do with how moral or intelligent we are. Plenty of hopeless money managers are both good people and very smart in every other respect. It depends on what many believe to be a genetic lottery.
Source: Crosswalk | Peter Andrew, Money Blue Book