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.
TIPS
• 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.
TIPS
• 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.
Philanthropy
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!
TIPS
• 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 www.jasonWqualls.com
