In April's issue of O, Dr. Phil shares a four-step program for teaching your child empathy as he answers a reader's question:
Q: I have a 10-year-old daughter who steals things from friends. My husband and I just caught her for the fourth time in two years. She makes up ridiculous stories about how the toys got into her hands. How do we deal with this?
A: Your daughter isn't a criminal. She's probably suffering from poor impulse control and an absence of values, which may be the result of a permissive upbringing. You're seeing an example of her unwillingness to tell herself no and accept that someone has something she doesn't.
She may have been spoiled so much that she believes she deserves anything she wants, and if it hasn't been given to her, she can just take it. As she gets older, self-indulgent behavior will carry stiffer penalties.
Another matter at least as troubling to me is that I believe you're dealing with a 10-year-old girl who has failed to develop empathy. Most children begin seeing things through others' eyes and anticipating their reactions around age 7. But your daughter is apparently unconcerned about the impact of her actions. She doesn't seem to be able to say, "I've taken this toy from my friend who prized it, and she's probably sitting at home upset right now." Without the ability to relate empathetically to her friends, she steals what she wants. So this is not really an issue of dishonesty so much as entitlement, poor self-control, and lack of sensitivity.
I'd suggest a four-step program.
First, talk to her about ehtics, compassion, and managing sudden urges. She has the vocabulary to talk to this level, and punishing her without instruction would be useless.
Second, I'd make her return each item and face the humiliation of having to look her friend in the eye and say, "I'm sorry I stole this, and I won't do it again."
Third, I'd ask her to write about why it's wrong to take what doesn't belong to her, including a paragraph about her friend's response when she discovered the toy was missing. Though you might have to help her with this, I think it's very important for her to jot it down, which will help crystallize her thinking.
Fourth comes discipline. Restrict her access temporarily to whatever her currency is -- games, TV, sleepovers. At this age, a weekend or so would be appropriate.

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