Personal Finance: Elmo puts kids on the right street financially

Do you want your child to end up being good with money?

Some parents assume that unless they are savvy about business and the stock market, they won't be able to position their children on the right course. But it turns out that the basics that build success with money are much simpler than that.

"It's about learning to delay gratification," said Beth Kobliner, an adviser to Sesame Street and a member of the President's Advisory Council on Financial Capability. The simple lessons should be taught to children when they are about 3 years old, according to academic research used in developing segments on money for Sesame Street.

The public-TV program has become a pioneer in financial literacy, a hot topic as Americans deal with excessive debt and homes they can't afford and approach retirement with far less money than they will need. Advocates contend that everyone needs basic lessons about handling money, and suggestions range from school classes to adding segments on sitcoms that emphasize getting rid of debt.

But children need no elaborate courses to get on the right track, according to research. Parents can see the lessons played out at http://is.gd/eLebmS.

Based on academic research on children and financial decision-making, the program teaches the importance of saving, weighing choices before spending, and sharing some money with others. It features Elmo, one of the Muppets. He impetuously darts between things he would like to have: first, ice cream, then a sparkly, musical ball that costs $5. He wants it but has only $1. Frustrated that he can't have what he wants, he eventually learns to handle disappointment and is taught to work for money and save a little at a time until he accumulates the $5 he needs.

The lessons illustrate delaying gratification, trading off choices, and planning to equip yourself for what you want, lessons that come out of academic research in child psychology and neuroscience.

University of Wisconsin-Madison professor emeritus Karen Holden, who advised Sesame Street, notes that preschool is an ideal time to lay the groundwork about personal finance because it is about making choices, suppressing immediate urges, assessing opportunity costs, budgeting resources over time, and accepting financial risk.

"Development of self-control becomes central to making choices," she said.

Research by a team of psychology and neuroscience professors led by Duke University's Terrie Moffitt has shown that weak self-control in children predicts those more likely to eventually have health and financial problems, suffer tobacco and drug abuse, commit crime, and be a single parent.

The researchers have been following a group of 1,000 children for 30 years after identifying those with self-control problems.

Family socioeconomic status, IQ, and income can also foreshadow a person's future income, but the researchers said that when they took those factors into consideration, the lack of self-control remained a substantial influence. They found that at age 32, the people who had been identified with poor self-control as preschoolers were less likely than other 32-year-olds to save and "acquire financial building blocks for the future" such as homeownership, investment funds, or retirement plans.

As for very young children, Kobliner said, Sesame Street originally considered a segment in which Elmo would be saving for a bicycle. But the goal was too long-term for a preschooler, she said, so the $5 ball became the focus. She said parents should look for every opportunity to teach children to make money choices, such as buying milk at a less-expensive store so they have more money to spend on something else they need.