The Libertarians

Today’s spending advice

It isn’t often the Today show provides quality financial advice, but every dog has its day. Jean Chatzky, Today’s financial editor (did you think such a position existed on a program dedicated to puff pieces and soft lighting?), wrote an article on what parents should teach their children about money. And the advice is good.

First, Chatzky suggests parents give their kids an allowance. She explains “kids need to learn that a) money is limited and b) that they need to make choices about what they do and don’t buy. If you give your child an allowance and continue to pay for all the things they want, you completely miss the opportunity to teach them this lesson.”

This is straight out of economics 101: resources are scarce and everything has an opportunity cost. If you buy a Barbie, not only do you reduce your available resources, but you also sacrifice the chance to buy everything else that is not a Barbie with that money.

Second, Chatzky writes “don’t bail out your kids” (bold original). She explains that if the kids exhaust their available funds before the end of the week or month, parents should not lend them extra money to make ends meet.

Ummmm…this sounds familiar. Where have I been reading about bailouts? So if your kids act irresponsibly and spend their entire allowance on Monday, parents shouldn’t dash to the ATM and extend them a line of credit to get through the tough economic times? Really Ms. Chatzky? I don’t think Chairman Bernanke would agree with you.

Third, this crazy Today show woman suggests kids work to earn more, writing “there will come a time when your kids want to buy something that allowance won’t cover. When they’re young, give them ways at home to earn extra money…When they’re in middle and high school, encourage them to work outside the home.” What a concept. Work and earn money.

I would just add parents should encourage the rug-rats to save what they’ve earned as well. But that is quibbling.

Finally, and I’m not making this up, Chatzky repeats in big bold letters: “Do not bail them out! — I can’t say this enough. None of these lessons will have ANY staying power if you continually hand your kids more money.”

Right, I think she might be worried about a little economic theory called moral hazard. Of course, prim and proper pundits down DC-way think such things are overblown, especially in the face of financial disaster/ruin/collapse/apocalypse/etc. You know the type, they write stuff like this: “Yes, this [bailing out Bear Stearns] is creating moral hazard that we’ll have to deal with, probably unpleasantly, down the road. But whatever the moral hazard, it is hard to see how it could be worse than the full-blown financial crisis the Fed is trying to avert.”

A final tally:

Today show financial editor Jean Chatzky advising on child money management - 4
Megan McArdle/Chairman Ben trying to justify bailouts to rich Wall Streeters - 0