What to do with the tooth fairy?

At CANSTAR, we try to tackle the big issues in personal finance, so I was surprised this week to discover there are no articles on the website relating to the tooth fairy.

My search was prompted by the loss of my five year old son’s first tooth. It was a great moment as the excitement leading into this momentous event has been building for over a week and there has been lots of discussion re the tooth fairy.

The situation was complicated slightly by the fact that we are currently on holiday in Croatia which caused some concern that the fairy might not be able to find us. We shouldn’t have worried though the next morning a 5 Kuna coin (about 1 Aussie dollar) was found neatly wrapped up in a red napkin, and we had a very excited boy bound into our bedroom just before 6am.

This however was when my real dilemma began. What to do with 5 kuna? This is the first money of his own my son has ever had, so a great opportunity for a father son lesson in financial education.

As far as could determine I could try and steer him down any one of four paths:

1. Spend it! – If I can buy 2 litres of beer for 14 Kuna, I am sure my son can find something he would enjoy equally for five. Plus he learns a lesson around value, and using numbers.

The downside is that his first experience with his own money is to spend it. What are the long term implications? Is this the beginning of a downward spiral leading to an addiction to spending with money always burning a hole in his pocket?

2. Invest it! – Ok even I can recognise that this is a bit ridiculous. Assuming an investment rate of 7% in 40 years’ time the 5 Kuna will have grown to be worth about A$16!

3. Save it! – This isn’t such a silly idea. If I can convince him that by waiting for more teeth to fall out he will be able to buy something better than a lollipop, it might set him on a path to financial success.

4. Give it! – mmm, a lesson in philanthropy? This would probably work, as he has such a kind nature, convincing him to give the coin to someone less fortunate would be relatively easy I suspect – but I might leave this lesson for his 3rd of 4th tooth.

Perhaps I may have been over analysing the situation just a little too much, but I am a big advocate of financial education at a young age and anything we can do to reinforce positive habits with money before they become financially independent.

The Financial Literacy Board, chaired by Paul Clitheroe, is doing a great job particularly around trying to get financial education built into school curriculums. However, as parents we can also do plenty by being proactive and explaining to how kids how money works. For instance we can teach them savings habits, we can talk openly about the types of debt we have and the impact of interest rate changes, we can show them insurance renewal documents and possibly even our superannuation statements and explain all the information they contain.

The key message is don’t expect your kids to be financially successful if you treat money as a taboo subject.

So what happened with my son? Well, I was very relieved when he announced the following day that he had lost the coin, despite a comprehensive search it couldn’t be found. So we commiserated with ice cream.

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