A “LOADED” Case for Early Financial Education

Sarah Newcomb is a behavioural economist and expert in the field of financial decision making. We read her book “LOADED” because we’re in the (volunteer) business of helping kids make financial decisions. Are we ever glad we did. Dr. Newcomb aims to translate the findings from scholarly research into practical and useful tools. At the Gifting Sense project, we have a practical and useful tool, whose benefits we can now describe in more scholarly terms, thanks to Dr. Newcomb!

For a very long time (everyone likes to call us “new”, but the Gifting Sense Project began almost a decade ago) we have felt the reason so many people continue to struggle with successfully managing their personal finances, even though there is more fantastic financial information available than ever before (in the history of the planet!), is because hardly any of that fantastic financial information feels relevant to kids,  and childhood is when our money personalities are developed.

What’s a “Money Story”?

There are many descriptions available for the set of habits and beliefs we develop about money when we are young: Dr. Brad Klontz calls it a “money script”. Dr. Newcomb employs the term “stories”. We use “money personality”, because that’s the term that seems to resonate with kids, parents, and educators. Whatever term you use, what’s important to remember, is that habits and beliefs we develop when we are young, are incredibly stable. Which means that how you grow up with money, cannot help but inform how you think and act with it, as an adult. Which is why having early positive money management experiences, ideally before the end of middle school, really matters.

At Gifting Sense, we give school-aged children, a simple but positive money management experience, during the time in their lives, when imprinting good financial habits, can shape their future money habits. What is that experience? It’s basic, but super-effective at getting the job done: We have kids ask and answer simple questions, about typical childhood purchases, before, anyone spends a dime. In other words, we let them experience how easy and rewarding it is, to think before you buy.

Building Positive Evidence-Based Money Stories

Once children experience how helpful it is to have the answers to a set of simple questions, before they buy something (or ask someone else to buy it for them), their “evidence-based money story” (Dr. Newcomb’s words, not ours!) begins to include the fact that getting financial information isn’t hard, or boring, but rather quite easy, and super rewarding. When you think about it, it’s not hard to get answers to questions like “What is the return policy or warranty? or “How much do sales tax and shipping add to the cost of a seemingly small online purchase?” But knowing the answers to those questions can help you avoid disappointment, reduce waste, improve family harmony, and protect the planet – all at once – for free! Pretty powerful, huh?

Dr. Newcomb understands where our money personalities come from. Her research explores why certain childhood experiences lead to later-in-life apprehensions about money. This obviously spoke to us at the Gifting Sense Project. After all, our vision is a future where young adults avoid early financial pitfalls, because they developed productive money habits when they were young.

We L-O-V-E how Dr. Newcomb rejects categorizing every purchase as either a “need” or a “want”. Because the implication is that anything that isn’t necessary for basic survival (food, water, shelter) is in some way extravagant. But of course, humans have all sorts of needs that aren’t basic, nor reckless, for example, the need to socialize. The trick then, is to see if there is an inexpensive way to meet that need. Oftentimes there is.

The Two Most Effective Types of Financial Education

Dr. Newcomb states that two of the most effective types of financial education are “just-in-time” and “rules of thumb”. Just in time education is best because “we are much more likely to pay attention and to retain…information when it is immediately useful to our lives…Rules of thumb are great tools because they are easy to remember and can apply in many different circumstances.” Gifting Sense offers both:

  1. Anyone who has had a child attend a Gifting Sense workshop knows kids calculate the DIMS – DOES IT MAKE SENSE?® SCORE for a purchase they’re already thinking about. In other words, they know we encourage young people to gather information “just-in-time”, to help them avoid making a purchase they may regret.
  2. As for Rules of Thumb, we couldn’t be prouder of the fact that “What’s the DIMS SCORE®?” is becoming a battle cry heard throughout many a school and household hallway. Dr. Newcomb knows that “thinking of new strategies in the heat of the moment is hard. Remembering ideas, you already thought through is easy.” Guess what? Any young person who has calculated the DIMS SCORE® even once, forever after, has at least some idea of the simple questions to ask and answer, to make sure what they are buying makes sense for both them, and their family.

One Way to Avoid Confirmation Bias

The first 5-7 questions asked by the DIMS SCORE® Calculator help young people discover an item’s cost-per-use, or the total cost of an experience (including for example the safe transportation, snack, and souvenir costs of attending a professional sporting event or concert). This has kids come face-to-face with the true cost of a purchase, as well as how much they’ll really use and appreciate an item, or experience, before they buy it. In Dr. Newcomb’s words, this prevents kids from engaging in confirmation bias “…the tendency to pay more attention to information that supports what we already believe.” In other words, calculating the DIMS SCORE® improves family harmony!

Because most family arguments about spending stem from the question “What’s the big deal?” “What’s the big deal, we just want to go to the movies, it’s only $8.00!” Parents of course know the big deal isn’t the $8.00 ticket. It’s the pricey snacks and effort/ cost of getting to the theatre and back safely.

In fact, half the time kids don’t even end up asking for something they calculate the DIMS SCORE® for – because doing so helps them quickly, but consistently, figure out a purchase probably doesn’t make sense. They’re unable to ignore the facts which are laid bare in the shareable summary of all the math and thinking they’ve done.  The happy result: parents receive fewer, but better quality, requests to spend.

Our Favourite Insights

We L-O-V-E how Dr. Newcomb rejects categorizing every purchase as either a need or a want. Because the implication is that anything that isn’t necessary for basic survival (food, water, shelter) is in some way extravagant. But of course, humans have all sorts of needs that aren’t basic, nor reckless, for example, the need to socialize. The trick then, is to see if there is an inexpensive way to meet that need. Oftentimes there is.

Because spending is just one strategy we can employ to meet our needs! A great middle school example: if you have a perfectly normal need to be social on a Saturday afternoon. You can spend money on a movie ticket and snacks, to go to the theatre with your friends, or you can stream something together at home, with homemade popcorn.

Who Doesn’t Want to Avoid Waste in Their Personal Economy?

And finally, we applaud Dr. Newcomb’s use of the term “personal economy”. How many times have you heard us say that personal finances need to feel personal – even for kids! The Gifting Sense project is based upon the idea that when we give children the opportunity to ask and answer simple questions about typical childhood purchases, before they make shopping decisions, we help them discover how easy it is to avoid waste, of not only time and money, but energy and the planet. Avoiding waste has to be the most painless way to reduce spending. The only thing you’re giving up is being wasteful! And all the sudden, you’re money-smarter. Because as Dr. Newcomb says, “…the most fundamental part of money management, is to spend less than you earn”.

This is our longest blogpost ever, so we’ll stop right here, but please know that “LOADED” is a very interesting and insightful read. It contains so many little pearls, like an explanation for how you can become more financially patient (get cozy with your inner senior citizen), how having a clear picture of your money can help you enjoy it more, why meeting emotional needs with money rarely works, and two sizeable indices, loaded (couldn’t help ourselves) with all sorts of downloadable exercises and worksheets.

Here’s to early financial education, and all that it can accomplish, which is a lot!

To test drive the DIMS SCORE® Calculator, or learn “How It Works”, please click on the pink or green buttons below.

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