Kids and Money: Five Ways to Teach Thrift

This just in from the Land of Duh: mutual funds with the lowest expenses have the best returns. In a new report, research firm Morningstar seems to prove the obvious - that when you shop for value you get the most reward. The fund study concludes, "In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile."

Somewhere mutual fund legend John Bogle is smiling. Bogle has been making this case for at least 30 years; naturally thrifty, he began to champion low-cost funds, including extremely low-cost index funds, in the 1970s. As Bogle has pointed out repeatedly, the lower a fund's costs the better its chances of earning an above-average return.

"Investing is all about common sense," Bogle says. "Trying to beat the stock market is theoretically a zero-sum game but after Wall Street's substantial costs of investing are deducted, it becomes a loser's game."

So it pays to consider costs when you invest - as it does with just about everything you spend money on. Bogle's wisdom - and Morningstar's study - can be extended to many areas of personal finance. Whether you're buying a computer or a car or a house, the full costs associated with the purchase will determine if it brings a satisfactory financial and happiness return.

Spotting value is a muscle that we should help our kids develop early. It will protect them from impulse spending and credit card bills they can't pay in full each month. Yet this is a muscle that, for many of us, has atrophied in the last decade or so. Yes, thrift has made a comeback since the Great Recession. But we're still rearing far too many spoiled brats. Here, then, are five ways you can teach your teens the value of finding value:

Put them on a budget. Force your teens to learn how to manage their money by giving them an allowance and refusing to bail them out when they overspend. When I did this with my kids they started swapping clothes with friends and shopping at Target.

Get your teens a low-cost reloadable debit card. Instead of handing them cash every week, load their allowance onto a debit card, like Wal-mart's Moneycard. It will get them in the habit of using plastic responsibly and with zero risk of overdraft fees and living beyond their means.

Charge them for being wasteful. Leave the TV on after you've left the room -- you're fined. Keep the room air conditioner turned on full when you've left for the day -- you're fined. The size of the fine should be just enough to sting.

Set a good example. Reuse Ziploc bags and plastic cups; clip coupons; make sure you turn out the lights. At dinner, talk about the new dish or brand on the table because it was on sale.

Encourage individuality. Challenge your teens to dress, act and think differently from their peers. Teens with a strong sense of self take pride in not following the crowd; they are far more likely to become leaders and far less likely to impulse spend on the latest gadget or clothing just to fit in.

You might say that comes straight from the Land of Duh. But sometimes it pays to prove the obvious.

Photo by James Jordan from Flickr

Dan Kadlec

Daniel J. Kadlec is an author and journalist whose work appears regularly in Time and Money magazines. He is the former editor of Time’s Generations section, which was written and edited for boomers. Kadlec came to Time from USA Today, where he was the creator and author of the daily column Street Talk, which anchored the newspaper's business coverage. He has co-written three books, including, most recently, With Purpose: Going from Success to Significance in Work and Life. He has won a New York Press Club award and a National Headliner Award for columns on the economy and investing.

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