Saturday, November 10, 2007

Teaching Kids About Money

For many families, talking about money is taboo. The adults make it, the kids ask for it, end of story. Yet financial experts agree that understanding cash, credit, and consumerism is possible, and important, for building a sense of financial responsibility in children. How can you teach your kids about money? What kind of message should you teach them? Let's talk about money.
The ABCs of Do-Re-Me
Kids need to know how the economy works. No, not stocks, interest rates, and world markets! I mean the basic ins and outs of a family economy. You can start when your kids are very young by helping them understand the difference between needs and wants, that money comes from working, what money looks like, and that everybody has a job (a kid's job is to learn things, to play, and to participate in the family). As they get older (once they know that a nickel is worth less than a dime, even though it's larger), you can talk with them about credit cards, bank interest, and so on. Kids can learn about budgeting from the time they are about seven. Remember that a solid money education is one of the best tools you can give your kids—it will aid them the rest of their lives.
Ethics through Sharing
Part of a solid money education includes teaching your kids that, as a member of a community, as a responsible person, and as a world citizen, they have a responsibility to other people outside themselves and their family. That means sharing. We all live on a small planet together, and we are all linked. Teaching your kids a sense of social ethics includes a sense of charity or giving.
You can help your child develop a sense of social responsibility by:
· Setting an example, modeling charity. Some families tithe to a church or temple, others put aside a certain amount of money every year to give to charity or service organization.
· Sharing your work specialty with others who can't afford it is another option for people who are knowledge or service “rich” but cash “poor.” Donate your services to a worthy cause of your choice, and bring your kids along with you. They'll learn a valuable lesson as you participate in improving the world.
· Volunteer work. People participate in giving programs during the holidays, but don't forget the rest of the year. The nursing homes are filled with amateur entertainers in December, and empty from January through November.
· Individual participation. Stress to your child that it's not enough that the family give, that every individual needs to participate, too.
· Giving. It's not how much you give. Every little bit helps.
· Donating. Kids can donate old clothes, toys, time, or a percentage of their allowance.

When you start to dispense an allowance, you should couple that activity with guidance on how to use the money. If you don't, your child may waste money on frivolous things and be short on cash for the things he needs. More importantly, he will develop poor spending habits that will be hard to break as he grows older. One kid used to immediately spend all the money that came into his possession on whatever he wanted at the time—usually comic books and trading cards. Today, that kid is a highly successful professional who still spends his money without any restraint—now on antiques and motorcycles. He's constantly short of cash for the things he needs, and he even had to borrow money from his mother to pay his taxes.
This person needs to learn to gain control over his money. He needs to know how to save for the future while spending the balance wisely now. As with bad habits, good spending habits also last a lifetime.Another kid had only a tightly limited allowance and learned to spend it very carefully. As an adult, she was able to use her good purchasing skills in developing a successful retail business. By buying smart for her inventory, she could offer customers lower prices to attract sales.Schools generally do a poor job in teaching about money, so it's primarily up to you as a parent to educate your child in this area.
Planning for the Future
The future to a young child may mean the arrival of summer at the end of the school year; it's impossible to think about growing up, going off to college, and even moving out on her own. Still, the future is closer than she thinks. As adults, time seems to go more quickly than it did as a child—what seemed like years away now passes in the blink of an eye.
Your child needs to learn the importance of saving for the future, including these issues:
· What she's saving for
· What she has to put away to get there
· How long it will take her to reach her savings goal
· For example, if your 11-year-old wants a Discman that costs $100, he should know that if he puts $5 a week toward this wish, it will take him 20 weeks (or about five months) to reach his goal. He can probably handle the math himself, but you'll have to encourage him to do it.
· If your child sets a goal that would realistically take her years to reach, there's nothing wrong with agreeing to match her savings or contributing to her savings fund. After all, if your employer offers you a 401(k) plan, he probably matches (on some basis) what you put into the plan. For example, if your 10-year-old wants to save up for a video game that's going to cost $30, you might suggest that she save $2 each week for two months (eight weeks). She then will have saved $16, and you can pay the difference, which is roughly half the cost of the game.
· Setting savings goals is explored in more detail in Teach Kids to Save Money for the Wish List. The important thing to note here is that your child should get the idea that saving is a part of being grown up enough to have money.