Monday, April 9, 2012

Teaching Your Kids About Money

Most of you have children that still living under your roof, or at the very least you have grandchildren. And each of you, are in a position to make a huge impact on their lives. So today, I want to focus on helping the next generation. 

I have heard it many times from people of all ages, saying that they wish they would have been taught how to handle money while in they were in school. But when people say things like this, what they really mean is, that they wish someone/anyone would have taught them about money when they were growing up. So maybe, just maybe, they could have avoided some stupid money mistakes in their adult life. In my opinion, we shouldn’t rely on the school system to teach our kids about money. As parents or grandparents, that should be in our job description. It can’t be avoided; money plays a significant role in each of our lives. And children are NO exception to the rule. Teaching our kids how to manage money can serve them big time later in life, and it is just as important as teaching them right from wrong and to make good grades in school.

One of the most valuable gifts you can give to your children is to teach them good money management skills. It’s not always an easy job, and the skills can take years to instill, but the lifelong benefits are immeasurable. My hope is to offer some easy ways to help your children develop sound money management practices.  Whether they are preschoolers, in college, or somewhere in between. The key to teaching children about finances is to begin the process when they are young. I recommend you introduce basic money management concepts as young as three or four years old.

 Responsible parents work hard to teach their children how to be self-reliant. And teaching your children how to manage money is a critical to preparing them to successfully take control of their financial future.

Preschool Years
As soon as your children can count, you should introduce them to the concept of money. Between the ages of three and four, most kids begin understanding how money is used. That’s when you can begin to introduce some basic concepts of money management. Don’t forget that children of preschool age base a fair percentage of their learning on observing and repeating the behavior of adults. So this is the time to be especially aware of the messages you send your children about money.


• Teach your children the difference between
pennies, nickels, dimes, and quarters, explaining
that each denomination has a unique value.

• Encourage your children to play grocery store
or bank with play money. This is a very effective
way to begin teaching the value of money and
the concept of purchasing things we want
and need.

• Give your children a small amount of money
(perhaps $1) when you go to the grocery store or toy store
and allow them to make their own purchases,
handing their money to the cashier and receiving
change. This is a good way to help your children
understand how money works, even if they
cannot count their change correctly.

• As your children become more familiar with
the concept of making purchases and receiving
change, encourage them to save any extra
money for future, perhaps larger, purchases.

• Help preschoolers understand the concept of
money by keeping your exercises simple and
repeating them until you and your children are
comfortable with the lessons being learned.

• Never forget that children learn by example,

Elementary School Years
By the time your children are in elementary school, they’ll probably be asking for an allowance. Don’t necessarily believe the argument, “All my friends get an allowance.” According to several recent surveys, less than half of children age 8 to 14 receive an allowance.

There’s more than one school of thought when it comes to allowances. Some parents believe that children should earn an allowance by completing household chores. This approach, many argue, reflects the real world where wages are earned for work completed. Others contend that every family member needs to help with chores and that chores shouldn’t be tied to an allowance.

Big NO NO: I don't recommend just giving money to your children when the need arises. Develop a system that works for your family.

How much allowance is enough?
I recommend giving $1 a week for each year in age— $8 for an eight year old, $10 for a ten year old, and so on. Regardless of the amount of money you decide to give a child, remain firm. Once your child understands what he or she is responsible for buying with the allowance, you should step back and let the child decide how to spend it. Independence is an important step in learning money management. It’s not unlikely for your child to overspend. If overspending does happen, look at it as an opportunity to teach the basics of borrowing money and paying interest on it.

Finally, be sure to pay your child’s allowance on the day you and your child have agreed upon. Otherwise you’re sending the message that it’s acceptable to be late when meeting financial obligations. We expect to receive to receive our paychecks on time and so should they.

Now is the time to open a savings account
Establishing a regular savings routine is an important part of helping your child achieve future financial success. Just a few years after entering elementary school, your child is probably ready to open a savings account, if he or she is already receiving an allowance. A practical approach is to open a traditional savings account at your local bank or credit union.

Once you child has a savings account, DON’T do the banking for them. Instead, on a regular basis—perhaps weekly or monthly—take your child to the bank and allow the child to fill out the deposit or withdrawal slip and complete the transaction with the teller. This approach gives your child a greater sense of ownership of his or her money. By conducting their own banking transactions, your children also have a chance to practice their math skills, become familiar with filling out forms, and get practical experience conducting simple business transactions.


• If you give your child an allowance, provide it
in small denominations that encourage saving.
For example, if the amount of the allowance is
$5, provide it as five $1 bills and require that
your child place a portion in savings.

• After each trip to the bank, take a moment to
review your child’s bank book with him or her,
reviewing each transaction. Although any interest
earned will generally be meager, explain how
and why it’s paid—earning interest is one of
the fundamental rewards of saving, and it
shouldn’t be overlooked.

• Most of us can depend on receiving paychecks
either weekly or bi-weekly. Use the same
approach when paying an allowance. If
necessary, create a simple bookkeeping
system to record when you’ve given your
child his or her allowance.

• Help your child determine the amount of
allowance to save and explain the reason
for setting aside this amount.

• Consider matching any amount that your child
places in a savings account. Matching a child’s
savings can act as a powerful motivator for the
child to continue to save.

Middle School Years
As your children approach their teen years, their responsibility for managing their money will naturally increase. These are the years when your children usually start making more frequent—and more expensive—personal spending decisions. It’s the time to begin encouraging your children to become wise shoppers, to save for longer term goals, and to appreciate the value of charitable giving.

Explain the family finances
By the time your kids are in middle school, they will probably have a basic understanding of how the family finances work. But as you help them become more responsible money managers, it’s a good idea to begin including them in more in-depth family financial discussions. Of course, this doesn’t mean that you need to reveal how much you earn.

Consider involving your kids in some of the following decisions:

• Where should the family spend its vacations?
• Which charities should the family contribute to?
• How can the family save more money?
• How can the family cut expenses?

Help your kids become wise shoppers
Kids spend millions of dollars on clothes, games, and music, school supplies. Unfortunately, they don’t always get their money’s worth. One of the reasons is advertising. Young shoppers often don’t seem to be able to successfully sift through marketing hype. That’s why, as your kids enter their teens and become mainstream consumers, it’s important to help them evaluate TV commercials, radio ads, and other advertising.

Here are some questions they should be able to answer:

• Will the product really do what the ad says?
• Is the price offered really a sale price?
• Are there alternative products available that will do a better job at a lower cost?

Encourage long-term saving
Kids tend to live in the moment. Whether it’s buying a new bicycle, sharing the cost of a summer trip, or getting the newest iPhone, once your child has determined a savings objective, help him or her to set up a savings plan.

In order to reach his or her goal, your child will need to set aside a specific dollar amount or percentage of his or her allowance or any earned income. As you did when your child was younger, provide a powerful incentive by offering to match the amount saved. Once again, consistency is the key to success. After you and your child have agreed on how much he or she should save and how often, insist that your child stick to the savings plan.

Part of educating your children about money includes teaching them that, as responsible members of society; they have an obligation to those who are less fortunate than they are. In fact, kids can possess a surprising sense of philanthropy, and experts agree that more young children and teenagers are getting involved in charitable giving than ever before. Even if you already have an established approach to philanthropy that includes the participation of your children, they may have their own ideas about which charities they’d like to support. Remember that charitable giving means more than donating money. More often than not it’s about giving one’s time. Countless organizations, especially local churches, nursing homes, libraries, and facilities that serve the needy, rely heavily on volunteers. Donating their time can be a practical way for kids to learn firsthand about philanthropy.

High School Years
It’s time to get a job!
Nothing teaches kids the value of a dollar better than having to work for it. Jobs offer kids a sense of responsibility and independence, along with a host of practical education opportunities that will prove valuable later in life, including how to:

• Balance their job with the social and academic aspects of their lives.

• Interact with people in a variety of situations.

• Develop negotiating techniques.

• Learn new skills.

You should also help your child fill out the required job applications, create a resume etc., tax forms and understand how various taxes are levied, including those for Medicare and Social Security. Or lack there of!


• Let your teenager do the family grocery shopping.

• Explain how debts and credit cards work, especially the danger of incurring too much debt.

• Before your child goes for that first job interview, try role playing to provide a more realistic sense of what he or she can expect.

• If your child has a job, be careful to determine a schedule ahead of time that stipulates which hours are for working, studying, and fulfilling household responsibilities.

• Explain how different kinds of insurance work, especially automobile insurance.

• Before you allow your teenager to have a credit card, involve him or her in occasional credit card purchases; explain how to verify charges using your monthly statement and how to guard against credit card fraud.

College Years
 If you thought teaching your high school-er about money management was challenging, wait until he or she goes off to college. These can be the years when your children have the most difficulty managing money. It’s the time when they are out on their own, with little or no money—and a lot of spending opportunities.

Have a plan
Don’t wait until your child is moving into a dorm to decide which expenses you will cover and which he or she will. If you plan to provide money, agree on the amount and a plan for disbursing the funds. A biweekly disbursement schedule is better than a lump sum payment each semester, since it ensures that your student won’t be tempted to spend a large amount of money quickly.

Encourage a budget
Stress to your child the importance of carefully listing all his or her sources of income, including any financial support you may provide, and any employment earnings. The next step is to have your student identify all his or her expenses, including books, school supplies, meals, entertainment, personal care, clothes, travel, and so on.

Avoid credit cards
College kids are flooded with credit card offers. While having a credit card can be useful in an emergency and can help your child build a credit history, credit cards are too often an invitation to overspend. A survey by Sallie Mae suggests the danger that credit cards can pose. The results of the survey indicated that over half of college students accumulated more than $5,000 in credit card debt while in school. One-third of the survey respondents reported that they amassed more than $10,000 in debt. If your child does get a credit card, be certain that he or she understands exactly how credit works and that your child avoids charging more each month than he or she can afford to pay. Stress that misuse of credit cards can have a damaging effect on credit history. As mentioned previously, to be on the safe side, have your child get a debit card that limits spending to a predetermined amount.

I hope the above illustrates the importance of teaching your kids about smart money management. These skills will serve them for the rest of their lives. If I can help in any way, give me a call at 615-878-2134 or

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