Managing money and making sound financial decisions has never been more challenging. At the very core, however, are the unchanged basics of planning carefully, spending wisely and saving regularly. These are the fundamentals you want your children to understand and embrace.
It is never too early, or too late, to introduce your children to money and help them build good lifelong financial habits:
Pre-school: Recognize coins and begin to understand what they are worth and which ones are worth more than others.
Primary grades: Count, sort and save change. Help “manage” a family vacation or treat fund.
Grades 4-6: Set up a savings account online or at a local bank. Keep a budget of personal spending to see where your child’s money is going. Become more aware of costs of running a family and your child’s role in helping the family save money. Begin to understand the concepts of credit and the importance of using credit responsibly.
Middle school and up: Manage savings with an eye toward funding future needs such as clothing, school supplies, even some college expenses. Understand financial options, opportunities and obligations of adults, including credit, credit reports and investments.
You don’t have to make money lessons special events. There is a lot your kids can learn every day if you let them participate in the many routine financial transactions that take place all around them.
Saving change. As soon as children can count, let them count the change you have left at the end of the day. Put a certain amount of the change in a family jar and use it to buy a small treat each month, or put it toward a family outing or vacation. It can be the kids’ job to keep track of the change and give you a weekly report on the total.
Wants and needs. Young children often have difficulty distinguishing between wants and needs. The grocery store (or any store) is a good place to begin a process of differentiating between wants and needs. For instance, kids may need calcium to help form strong bones, but they may want chocolate milk. Kids may need a good breakfast to give them energy to start their day, but the breakfast they may want is a jelly doughnut! Kids may need jeans for school, but they may want a brand name item that they’ve seen on TV.
Grocery shopping can be a good opportunity for kids to use math and decision-making skills as they help you determine the “best values” and learn the challenge of feeding the family well and within budget. Make kids aware of the cost of that special cereal they really want. Ask them to total up your purchases before you get to checkout (including the sales tax), using a pocket calculator. Let them weigh produce and calculate the price.
Buy now, pay later. If you use a credit card at a restaurant, you can explain how it works to your children beginning in grades 3 or 4 all the way through senior high. Show them how to check the bill and calculate a tip. Explain that using a credit card is convenient because you don’t have to have cash with you. However, if you charge too many things and cannot pay the whole bill when it comes, you will be paying extra because of the interest charge.
Are we there yet? Family vacations can be more fun for everyone (and maybe a little less harried for the adults) if children are involved in the planning and cash management aspects. Decide ahead of time what you can spend on meals, destinations and special treats or souvenirs. Give children a role in these decisions appropriate for their ages.
During the car rides from place to place, engage fidgety kids in calculating what has been spent and what they might want to purchase at the next stop. They are also learning to make choices and discover afterwards if they think they have made the best choices. If you stop for gas at an exit that has several gas stations, ask the kids to compare the gas prices for you to see which station offers the best price.
Kids can also help you keep trip diaries, calculating distances traveled, costs of food, gas and lodging, and descriptions of the towns and areas you visit. This is a good way to integrate finances into life experiences, so children begin to view money management as a key component of their lives, not an isolated exercise.
Are you still on the phone? Phone, Internet and electricity costs can be cause for family arguments as the kids get older. Turn these potential family feuds into learning situations. What is the cost of an hour on the phone to that friend down the block or in the next state? What happens to the electric bill if all the lights are left on or the air conditioning is on high? Older kids can help research the best calling plan for your family or develop some smart energy use strategies.
You tell me! Often kids, especially older kids, want items that are more expensive, such as stereos, CD players and game boxes. When your child requests such an item and it is something you are willing to consider, have your child do the research to find the best pricing. Newspapers, phone and Internet research will turn up different prices for the same item. Have your child compare total costs, taking into consideration base costs, taxes, shipping (if any) and the value of any add-ons (extended warranty, for example).
Giving children some money to handle at an early age is a good way to begin teaching financial responsibility as long as you set some rules and develop a structure your child can follow.
Which is better: a regular allowance, pay given for work projects, or some combination? That’s a very individual and personal decision.
Most experts agree the important thing is to allow children to have some money that is their own to manage, save and spend. Accountability is a good lesson to learn and having to take care of one’s own money is a good way to learn. Even pre-schoolers can start learning that money does not automatically come from parents whenever they want something.
Many of your kids’ friends probably receive some kind of allowance. It is a familiar form of payment. An allowance can be a positive tool, if you agree upon and stick with some family rules.
Some families successfully use a straight pay-for-work system instead of an allowance to make money available to the kids. A pay-for-work system involves real projects or jobs. The pay would be assigned according to the difficulty of the job and the length of time it would take to complete. Such jobs might include starting and maintaining a vegetable garden, lawn upkeep, painting a room or house exterior, washing the car or cleaning all the blinds.
That Saving Feeling. Maybe your teens are starting to earn money with after-school or summer jobs. At this point, they should definitely have a formal savings account (not just a piggy bank on the shelf) and a longer-range plan for the savings they are building.
One piece of financial advice you may have heard (especially from older relatives) is “pay yourself first.” Help your kids learn that lesson while they are young, so it becomes a habit they will keep up through their lives. Whenever they get paid (allowance, earnings or a monetary gift), encourage them to set aside an amount in savings first. Explain that it can be a very small amount. The important thing is to be consistent. Advise them to set a minimum amount they can always meet. If they have extra cash, they can always save extra that week or month.
Help your kids make a “bank” for their savings. If they have a special place to deposit earnings, they are more likely to save because they can see it growing. Their bank can be as simple as a jar that is decorated, a small box or even a drawstring bag. It can be any container that makes them feel special about putting money away.
Online or downtown, introduce your kids to the world of banking and savings. After they have built up a few dollars, help them open a savings account. Seeing an official statement or having a real passbook can be added incentive to keep saving.
By Kathy Havens Payne