Financial Psychology: Comparison

Team BT here, back to answer another one of our kids’ tough money questions.  Last week, we focused on a query that reflects our kids’ innate curiosity about the world around them (“How much money do we have?”).  This week, we tackle a question that comes from their natural sense of comparison with others.

“Why is Alex’s house bigger than ours?” 

Welp. That’s a fun way to end a playdate.  

 Kids are observant, and it’s only natural that they have questions when friends have bigger houses, wear fancier sneakers or are vacationing when their family is staycationing.  

How do we turn a question that can feel fraught into a teachable money moment? We offer a few explanations to help our kids understand how every family has different financial circumstances and makes different financial choices.  

4 Points to Consider and Discuss With Your Kiddos

1. Parents evaluate income, inherited money, debt and expenses when deciding how much they can spend on a down payment or monthly rental costs.

2. Parents consider how much additional debt they want to take on when they apply for a mortgage based on their current income and expenses. That decision will impact the home that they purchase.

3. Families who live in an urban area might have smaller living spaces because housing is expensive when space is scarce. These families might value convenience over home size. In suburban and rural communities a dollar can stretch further when it comes to housing. 

4. Families with more children or extended family might focus their resources on a larger home to accommodate more people.

The most important takeaway?  Everyone makes different financial choices depending on their circumstances and values.  One family might allocate a higher percentage of their income towards housing, while another might prioritize savings, paying down debt or giving to charity. 

No matter what your answer, don’t shy away from the conversation.  By letting kids be privy to the money choices the adults around them are making, we help shape their financial psychology and help them build their own financial literacy skills.