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Your Child, Your Money, and Online Auctions

To Bid or Not to Bid?

The toy section of eBay reads like a Christmas list, and for consumers of all ages, this is an irresistible way to make a purchase: Place a bid, then bid higher, then hope against hope that you're not outbid by someone else.

For adults, being outbid on a coveted Beanie Baby may result in mild disappointment. For a child, it can be a crushing loss.

Therein lies the fatal attraction of eBay and other online auction services. For children especially, the concept of buying is transformed from the mere act of purchasing to the much more powerful act of winning. "Once it becomes a game, you have to win, and winning becomes more important than spending," warns Charles A. Jaffe, a syndicated personal finance columnist. "Power is an extremely big emotion when tied to money. When you get (the item) and defeat someone else, so much the better."

A New Financial Frontier

Never before in history have children been privy to auctions, once the sole province of art collectors and antique dealers. Though no one knows exactly how many kids are bidding online, many of the collectibles that form the core of eBay's commerce have particular appeal to them: Pokémon cards, Crazy Bones, Furbies, and the like.

Alvin Roth, an economist, has bid online with his younger son, a third-grader.

"Ben has made two purchases, one with his own money and one with mine," he recalls. "He had some money saved up and he wanted some Crazy Bones. He already knew what the retail price was and he got it for half that."

Together, father and son placed a successful bid on a tribal mask, after tracking the item over the course of a few nights. Roth believes the process can give children valuable insights.

"It helps him to know what he's willing to pay for things," Roth reasons. "A pitfall in auctions is failing to decide in advance what you're going to spend." Jaffe agrees, but fears that most parents "don't make kids aware of opportunity costs -- that is, 'when you spend this money, what else can't you buy?'" In the heat of the moment, with seconds to go before an auction closes, few children have the discipline or perspective needed to forgo a bid ?without adult counsel.

Bid with a Kid: Talking Points

Online auctions can be a financial teaching tool if you:

  • Have the time to take part in the process with your child, step by step.
  • Help him or her think through the process. "How much do you really want this? What's the most you're willing to pay for it? If you bought it in a store, what would the price be? If you spend all your allowance on this trading card, how can you save for new roller blades?"
  • Explain how auctions are different from other types of buying and selling ("Once you place a bid that's it, but if you go into a store it's easier to take things in and out of your cart. There's more time to decide.")
  • Acknowledge the emotions of winning and losing, while reminding kids of this simple rule of economics: People who are seldom outbid are those who are willing to pay the most, and most often, are not getting the best deal!
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