's Top Five Money Lessons For Kids
you teach them about saving, earning
Written by Wayne
Saturday morning started out peacefully enough, as the kids and I shared schedules over breakfast. My 14-year-old daughter was planning to see the school play and get pizza with friends; my 16-year-old son wanted to browse the gaming magazines and ogle guitars at a couple of local stores. All was well until they delivered their inevitable postscripts: Holly blithely requested $25, in addition to her $6 allowance, for her day. As for Scott, he was going to blow every cent of his birthday nest egg - $200 - on an acoustic guitar.
It was time for The Talk. I trotted out my well-honed speech about money not growing on trees and the virtues of saving. But this time I had a compelling curve ball to throw: There was a recession brewing out there on Main Street. Even worse, I reminded them, I was between jobs. That's right, I was no longer the well-oiled money machine I had been for the past ten years.
But selling the message that the cupboard is thinning is extremely difficult in this land o' plenty. The mere mention of spending can unleash a torrent of questions from kids that many parents are ill equipped to answer, like "Are we poor?" or "Why can't we buy that new lap top? You can just pay it off!"
Contrary as it may sound, this is actually an ideal time to grapple with these questions. "Parents can start teaching some of the messages about money that they have neglected," says Janet Bodnar, author of Dollars and Sense for Kids and mother of three. "Now there's a reason - you're afraid of losing your job, your nvestments aren't worth as much as before - to impose limits on your kids while you're learning to impose them on yourself."
Toward that end, here are five valuable money lessons. By teaching them to your kids, you will be passing along not only an understanding of money management, but also the values you prize most.
1. It isn't a bargain if you don't need it.
While shopping at the mall, your fifteen year-old daughter spots a 30-percent-off sign in the window of her favorite store. She zips inside, and five minutes later, insists on using the last of her allowance to buy a pair of deep-discounted designed jeans-even though she has a drawer full of denim at home. Three days later, she finds out that her favorite rock group is coming to town and begs for the ticket money.
The experts are unanimous: Don't bail her out. "Letting children making ill-advised purchases with their money now, when the expenditures aren't large, is the best way for them to learn," says Paul S. Richard, executive director of the Institute of Consumer Financial Education in San Diego. (www.financial-education-icfe.org) In a child's (as well as an adult's) world, need is often another name for want. "There's nothing wrong with wanting something," says Neale S. Godfrey, author of Money Doesn't Grow on Trees. "It's just that parents shouldn't have to foot the bill for it."
2. Little savings yield big rewards.
The idea of saving will never elicit applause from kids. (And in these days of anemic interest rates, it may be even harder to sell it.) But there are ways for parents to make savings more seductive. If your son wants a new TV for his room, play CEO and start a home version of a 401(k), explaining that you will throw it in, dollar for dollar, what your child saves up to a $100 or $150 limit. Better yet, enlist children in a family cause. I did. After I lost my job, we decided to trade in our usual trip to the Cayman Islands for a less taxing getaway in Vermont. We set up an Easter fund and squirreled away a not-insubstantial $320. The kids learned a principle even some parents find difficult: delayed gratification.
3. You earn money; you aren't entitled to it.
According to Godfrey, an allowance isn't a gift. "There are no entitlement programs simply because you were born," she says. "Kids need to earn their money to understand how things work - and to understand how difficult it is for you to earn money." In Godfrey's house, her kids don't get paid just to keep their room clean. Those are citizen-of-the-house chores. Godfrey does pay an allowance for jobs that teach kids life skills within the household: recycling, ironing, washing the car.
Godfrey's allowance system requires that children take 10 percent off the top for charity; the other 90 percent is divided equally between quick cash they can spend now, medium term savings (for bicycle or designer clothes), and long-term savings (college). What's key is to use an allowance as a money-management course with training wheels. "Kids will learn to live within their means or earn more," Bodnar says. "I told my kids I would purchase their tickers to the movies, but they would have to spring for their own popcorn and soda out of their allowance. Immediately they started looking for the theaters that give free refills. If it were my money, they couldn't care."
4. You'd better shop around.
Overspenders aren't just people who spend more than they have," Richard says. "Overspenders are individuals who spend too much for things when they can get them cheaper." Children and adults, whether they're financially flush or preserving their nest egg, need to become accomplished comparison shoppers and full-time coupon clippers and clickers (on the Internet). Both Godfrey and Richard encourage kids to cut out coupons for groceries and household items. The catch? They had to find bargains on stuff that everyone eats and in quantities that the family usually buys. "A 64-0unce jar of mayo is not my idea of savings," Godfrey says.
5. You're richer than you think.
Most kids, at one time or another, pop the question, "Are we wealthy?" And most parents answer no. "That's ridiculous," Godfrey insists. "The answer, pretty much, is that if you live in this country, you are wealthy." Explain to your kids the intimate relationship between money and family values. "I tell my kids that we have food, clothes, and a roof over our heads. I remind them that they're lucky to be going to college. "Rich is having what you need and a little bit more." Hear, that.
Kids' stuff: tips for the tricycle set
You can start explaining the financial ABC's to kids very early - even as young as three, suggests Neale S. Godfrey - when they start asking for things. Here are four effective ways to help younger children understanding dollars and cents.
1. Start an allowance by the time your child is seven. The amount is up to you, but choose a an allowance day and dispense the money to your youngster every week.
2. Managing money, even if its only a buck, can be a great teacher. Use the supermarket to teach little ones how to save money. Let kids choose some of their favorite foods, then compare them to less expensive store brands.
3. Take time to explain. If you are in a restaurant and you pay the check with a credit card, explain to your five year old daughter in very basic terms what you are doing. The same goes when writing a check or withdrawing form a bank, and so forth.
4. Get them to save up for something small. If your son wants a pack of trading cards or a cheap comic book, something under $2, have him set aside some of his allowance for it. In two weeks or so, take him out and let him buy it, he'll be thrilled.
More Information Please Contact:
Paul S. Richard, ICFE Executive Director