TEACHING OUR KIDS ABOUT MONEY

 "Think twice about spending money you don't have on things you don't need, to impress people you don't like anyway."

Teaching children the value of money is more difficult in today's cashless culture where checking accounts, ATM cards and credit purchases are part of everyday life.  Up until they start earning a living, and sometimes well beyond that, kids are apt to spend money like it is growing on trees. 

Recent Statistics:

• 74% of parents give allowances; 66% of those who give allowances tie them to chores; 54% of those who give allowances require their kids to save a portion.
• Pre-teens (ages 8-12) spend $19.1 billion annually, or $946 per capita.
• Businesses spend an estimated $13 billion a year marketing food and drinks to U.S. children and their parents.
• Children in the United States watch an average of three to four hours of television a day and view an estimated 3000 commercials a month.
• Average number of shopping days a year for kids is over 200.

"If we aren't careful, our children will come down with 'affluenza,' a disease that causes them to confuse wants and needs.  We need to teach our children what my grandmother taught me: "Think twice about spending money you don't have on things you don't need, to impress people you don't like anyway."
- Michelle Singletary, Washington Post

If you were lucky, you may have had parents who talked openly about money with you, and perhaps even showed you how to earn and save money.  Perhaps you learned in school how to balance your checkbook, or how interest can make your money grow. But chances are most of your financial education came from your experiences - both good and bad.

How your parents or the adults you grew up with talked, acted, and felt about money probably affected how you handle your finances.  If they were spenders and always seemed to be living on the edge financially, you may also have trouble keeping a dollar in the bank.  Or maybe you are the exact opposite -a careful saver who feels guilty about spending a dime.  If you never had the opportunity to earn an allowance or get a job, you may have felt powerless and unable to get what you wanted, and that may have led to overspending when you finally did start earning money.

If you want to help your children avoid the same problems you've experienced, and grow up with good money habits, this newsletter is a good place to start.

There are many important things to know when it comes to teaching kids about money.

Long before most children can add or subtract, they become aware of the concept of money.  Any four year old knows where their parents get money - the ATM of course.  Understanding that parents must work for their money requires a more mature mind, and even then, the learning process has its issues.  For example, once when I was small and I came to understand that my father worked for a living, I  asked, "How was work today?" "Fine, my father replied. I then asked, "Did you get our money?"

Once children learn how money works, children often display an instinctive conservatism.  Instant gratification aside, once they learn they can buy things they want with money - i.e., candy, toys - many children will begin hoarding every nickel they can get their hands on.  How this urge is channeled can determine what kind of financial manager your child will be as an adult.

A seed that is planted early in children bears fruit later, which means it is important to work on your child's financial awareness early on.  Once they are teenagers, they are less likely to take your advice.  Besides, they are too busy doing other things-like spending money.

An allowance can be an effective teaching tool. When your kids are young, give them small amounts of money. This helps prepare them for the day when the numbers will get bigger.

Teenagers and college-age kids have bigger responsibilities which include checking accounts, credit cards, and debt.  These are as elemental to the college experience as books and keg parties.  Teaching high-schoolers about banking and credit will make them savvier when they leave the nest.

Making Allowances

Since most of us learn by doing, an allowance can give your child the chance to learn about handling money, while the stakes are still pretty small.  We, as financial advisors would like to point out that having a regular amount of their own income is the only way kids can learn to manage money. The purpose of an allowance is to give your children the opportunity to learn how to manage money through their own successes and failures with the input of their parents.

There's a strong argument that an allowance is the best way to teach a child to handle financial responsibility.  There's an equally convincing case that nothing could be further from the truth.

In either event, before they get an allowance, a child should be old enough to count money.  The key to a successful allowance is structuring it right form the outset.

Make it clear to your children what kind of expenditures the money is for, and that they are required to save some of it.  Younger children - ages 7-10 - shouldn't be held responsible for paying for items like school lunch out of their allowance, but it's not a bad idea for older kids, and it has the added benefit of fewer payments changing hands.

Some experts think parents should not link the allowance money to household chores.  Children should be expected to help out around the house and in the yard because they are members of the family, not because they are paid.  That, of course, is your call, not ours.

Yet with children over 8 or 9 years old, giving an allowance doesn't preclude paying them for specific chores, especially the occasional ones that you might otherwise pay outsiders to perform, such as shoveling the sidewalk or washing the car.  Why not keep the money in the family?

Some parents complain that giving their children an allowance puts the parents in a position where their kids are often begging for raises or advances.  If this is the case, then parents are missing the point.

Allowance is supposed to be a teaching tool.  Negotiation skills are an important part of that, and they're going to need them in dealing effectively with friends, teachers, and eventually their bosses.

So instead of grimacing when your children hit you up for a raise, decide when the time is right, and then engage them in fruitful negotiations.  How long since the last raise? Will new expenditures be covered? What amount of the raise will be saved long term for expenditures requiring your approval?

Most experts agree kids can handle an allowance by age seven, though some children start receiving an allowance in kindergarten.  Only you can determine whether your children is ready for an allowance and it's best to sit down with them and explain what that responsibility means.

When deciding how much allowance to give, you'll want to be sure you both understand what the allowance must cover.  School lunches? Snacks? Computer games? Extracurricular activities? For older kids, you may want to add clothing or bigger ticket items to the list.  Write it all down, so there is no misunderstanding later.

General Allowance Guidelines that most experts agree upon:

• Be reliable and pay the allowance at a set time each week.
• Require them to set aside a portion of their allowance in a safe place such as a savings account.  You may also want them to designate a portion of their savings for charity or other types of sharing (gifts for others, for example).
• Don't hold back an allowance as punishment.  Find other ways to discipline your kids.
• When they are older, consider paying interest on their savings to teach them the value of compound interest.
• Require them to spend their money for some of their "needs" as well as their "wants."
• Give them a save place to store their allowance, such as a piggybank or a cashbox with a key.
• Keep your two cents to yourself.  Kids need to be able to learn to make their own choices - and make mistakes- with money.  Your guidelines always apply, but as long as your child's choices don't violate your family's values or rules for safely, allow them some leeway.

Teach your kids how to make money

Many kids know their parents go to work, but really have little idea of what it takes to make money.  Learning how to start and run a business may be one of the most important lessons, financial or otherwise, they can learn.  They can learn math, marketing, communications, responsibility and a variety of other skills.  Even if your offspring end up working a job for someone else, they'll be better employees because they understand the challenges involved in having a business.

If your children are old enough to earn money on their own - usually by age 7 or 8 - help them research business ideas that appeal to them.  Assist them as they learn about marketing, keeping track of income and expenses, and following up with customers.  Just don't do it for them! Let them learn what owning a business is really like.

Teach your kids to be resourceful

Your kids may be more willing to help you stretch the family dollar than you realize. Challenge them with helping the family save money - and offer an inexpensive reward.  Depending on their age, they may help you come up with ideas for cheap meals, be willing to visit the local library instead of the video store for DVD's and CD's, or ferret  out places for free recreation.  Most kids like the idea of pitching in to help the family, as long as they feel their contributions are valued. Give them a chance.

Limit Television

Watching a lot of television exposes children to a lot of commercials. In turn, they often want what they see. Consider limiting television, and also talking with them about the commercials they see to help them learn how to distinguish between hype and reality.

A good resource for understanding advertising tricks of the trade can be found in Consumer Reports children's magazine Zillions.  Although it is no longer published, you can view all back issues at www.zillions.org.  Particularly funny is the section "food ad tricks" that shows how food is "made up" for advertising.  Check it out, it's unbelievable.

Use Real Life to Teach Your Kids

There are many opportunities as you go about your day-to-day life to teach your kids about money.  For example, you can have your kids help you:

• Calculate the tip in the restaurant.
• Double check the money you take out of the cash machine by counting it.
• Keep track of what it costs to feed and care for family pets, or create a budget for a new pet they want.
• Plan a special evening meal within a fixed budget.
• Help clip coupons.
• By only buying their favorite treats when they are on sale, or if they have a coupon.
• Make a list before you go shopping, and let them help you stick to it.
• When they old enough, have your child help you balance your checkbook or enter checks in your checkbook register when you pay bills.

There are many ways to help your children learn about money, spending and credit. Check our websites at www.godebtfree.com and www.godebtfreeeducator.com for more helpful children's websites that will help educate your children at an early age on ways to manage their money. Remember, teaching your children sound money management techniques will be one of the most important lessons you can impart on them as it will serve them for the rest of their lives.