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We are oftentimes asked how to teach our kids about Austrian Economics and the Free Market. We always reply in the same manner: don't teach, do!

Kids don't respond well to economic theories or clever analysis; they respond very well to economic incentives. Presto! The most basic Austrian Economic principle at work: money talks and walks.

How to go about convincing your kid that the free market works is simple: buy your kids' services. Do not "grant" your children allowances, this is precisely what government do; they grant themselves allowances through the unholy trinity: tax, borrow and print. And you know full well how this is going to end. Do you really want your kids to be government dependents?

Tell your kids that certain services will be remunerated and some privileges won't be free. Among them:

  • Regular house chores (set the table, wash the dishes, sweep, cut the grass, take out the trash, etc.)
  • Special tasks (fix the door, paint, change the lighting, wash the car, etc.)
  • School performance (offer amounts per exam, per special project, per assignment and so on - negotiate rates and acceptable performance)
  • Go half-and-half for special events (movies, amusement parks, etc.)
  • Limit their phone plans to the most basic service and make them pay-as-you-go. Let them finance their own phones.

Be creative with the options. Make the wages worth their while but do not be overly generous. Let them earn their wages; truly earn them. You are already providing a good environment, clothing, food, shelter and so on. Extras should not be included.

Let them negotiate the rates. Let them practice bargaining. Be tough but fair. Allow them to realize that value is subjective; what they really have to offer is not really all that valuable to you. Yet another Austro Libertarian principle.

Let them exploit you when you are in a hurry. Allow them to get a higher wage is you need their services now. Let them experience the concept of time preference. If you want it now, it is going to be at a different price.

Let them save and spend their money as they see fit. Remember, it is not your money, it is theirs. Truly. Let them make mistakes. Let them try to invest or save their money in a bank. Open a child account if you can. Let them experience firsthand what it means losing money through inflation and the concept of ridiculous returns on investment. This is perhaps the most important lesson you can teach them: money matters. For this to sink in it you must let it get as real as it possibly get. In these matters you are not their safety net, you are their employer or business partner. It is absolutely critical that you let them fail since failing is how we all learn.

Let them risk their money seeking higher ROI. They will learn the value of doing their economic homework, and the fact that risk is everywhere. They will understand firsthand that entrepreneurs risk real value, not just ideas.

Lastly and for special events, reward them with silver coins. This will teach them what real money used to look like. Silver coins are ideal for this lesson because they are relatively inexpensive, large and shiny! Never underestimate the psychological impact of real money.

In summary, treat your kids as your business partners or employees and they will learn to respect the free market and despise regulations. This is the best lesson you can give them. They will thank you for their entire life.

Of course, you may choose not to do so… but then again… you may choose not to make sense of reality. Your choice.

Note: please see the Glossary if you are unfamiliar with certain words.

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