Financial Training with our Kids

Money can be a stressful topic, especially in a tough economy, so all the more reason to start now to teach our kids to be financially responsible!  There is a lot of good information about teaching our kids about money from themint.org.  Everyone may not agree with everything here, but hopefully we can all learn a little from it.  Here are some things that jumped out at me...  -Lisa

Model Money Smart Habits

It has been said that "Children are great imitators. So give them something great to imitate."
As parents, we know our children observe our every action, including gaffes that we hope will go unnoticed.  We have those hopes because we know that our actions speak loudly.
In fact, a March 2010 Themint.org poll showed that parents have the biggest influence on the way kids save and spend money, moreso than friends, celebrities or their teachers.  Believe it or not, parents shape the way children manage money more than anyone or anything. They actively absorb the way that moms and dads pinch pennies or make mistakes with money.

Questions to Consider

Modeling money smarts takes a serious parental commitment.  Parents should consider the behaviors that they’re modeling to their kids by asking themselves: 

• Do my kids see me economize?
• Do they see me shop more often at outlet malls or high-class boutiques?
• Do I suggest that shopping is entertainment?
• Do I wait for an item to go on sale?
• Do I regularly clip and use coupons?
• Do I send in rebate offers?
• Have my children ever seen me save up for large purchases or do I whip out the plastic when you see something I want?
• When I make large purchases, do I research brands and features?
• Do I comparison shop with my kids to underscore the seriousness of the purchase?

Teach Them Well

Modeling money smart behavior doesn’t have to be complicated; there are many simple things parents can do.

• Involve kids in everyday conversations about money.  Use real-life situations to help them learn lessons.
• Use the grocery store as a classroom.  Talk through purchases with young shoppers and help them weigh all factors that go into a purchase decision.
• Extend the grocery store lesson to the shopping mall.  Reinforce smart spending, not immediate gratification. Wait for discounts, save for items and pay with cash instead of plastic.
• Emphasize planning.  Make a list before you enter a store to teach children to focus on needs.

Modeling money smart habits to children – aligning your actions with your words – brings the lesson home.  Start early, and you’ll lay the groundwork for financial security later on. 

  

Two ways to help your kids understand money

As savvy as kids are in this Information Age, they remain dangerously uninformed about money. Yet knowing how to manage money is a skill that will help determine the quality of your child's adult life. Just as kids learn to read and write, young people must become financially "literate." Few schools teach money management. As a parent, the all-important task lies with you.
As parents, we must move in two directions.

1. Every day, we need to create conversations about money – not lectures, but casual commentaries on situations that arise naturally in our days. The aim? To teach children a) how to think about money and b) make responsible decisions in using it.
2. We must review our own financial habits so that we are modeling responsible financial behavior. Children quietly observe adults, and parents are "modeling" financial behavior all the time – whether or not we mean to.

Everyday Opportunities
Our days are full of opportunities to talk about money with our kids.  Sometimes we don’t recognize situations as opportunities. Sometimes, we may see an opportunity, but we’re too rushed to take the time to talk about it – so we let these valuable real-life lessons slide. Other times, we think that it’s not “right” to talk to kids about our money decisions.
Question:  If we don’t take the time to use real-life situations, how will kids learn the money lessons they need as adults?  Our days provide many money lessons. How good are you at recognizing and using these lessons?

Allowances - Trial and Error Money Management
The main reason for allowances is to help kids learn – by trial and error – how to manage money. Because allowances give kids a steady income, receiving regular payments helps kids plan for the future: they can set goals, work to reach them, learn how to save and spend. They also learn to be responsible and to profit from their mistakes.

Responsibility of ownership

Allowances give kids money to keep track of – in other words, not lose or misplace it. If money "disappears," it's gone. Kids will eventually learn to be more careful with money.

Responsibility of making their own spending decisions

When kids must spend their own money on items you consider foolish or extravagant, you are no longer put in the position of approving or denying the purchase. It's their money. They may or may not learn that the item was not as great as it promised, or that is was flimsy, or that its excitement only lasted a day. If they learn any of those lessons, the item becomes well worth whatever amount of money your child paid for it.

Good practice

Kids are bound to make mistakes in the way they handle their allowance, but that is all part of the learning experience. Making mistakes early in life on small things should prevent more serious mistakes later on, when errors can have more long-lasting consequences.
While most experts agree that allowances are good money-management tools, opinions differ about structuring allowances. Families must decide for themselves how to iron out the details. Read more on how to structure allowances.

Allowances - the Issues
When to begin? How much to give? Do you supplement allowances with spending money? When do allowances stop? Here are some thoughts on each of these issues. Use them to discuss how to handle allowances in your family. Every family is different and has to decide for themselves what to do.

When to begin

Some parents begin before ages 6 or 7, as soon as children can recognize the different values of coins. What can a pre-schooler need? Not much. The idea here is to learn balance: spend some money, save some, and give some to charity. Some parents want to start these habits as early as possible. Others parents wait until grade school – these parents feel that grade schoolers have a better understanding of money and how it can be used. Let your child's grasp of the concepts be your guide.

How much

Some experts say dollars should match the child's age: $7 for a 7-year-old. Other experts recommend one dollar for every year of school. Such a pat formula is not always realistic. The amount you give your child depends on three factors:

• The economic climate of your neighborhood. What are other children getting? Different neighborhoods represent difference cost-of-living levels.
• What the allowance covers. In the early years, the allowance may be used for incidentals. Later on, it will cover more. The financial responsibilities of your child should grow with age. If your teen has to fund clothing purchases, gas, and auto insurance, as well as entertainment and daily miscellaneous purchases, then you have to give an allowance large enough to cover these needs. Being financially responsible usually makes kids respect the items they buy and teaches decision-making. They will learn very soon that money is limited.
• Other considerations. If you do not give enough money for teens to learn to save some for long-and short-term purchases, spend some money during the month, and perhaps donate some to charity, you are not providing a learning experience. If the allowance isn't generous enough, teens might spend it all because they haven't got enough money to divide among several categories.

How often

When children are younger, they should be paid every week. Young children more easily handle time in smaller chunks.
However, you might consider shifting to a monthly payment for teens. Being paid once a month more closely approximates the real world, where paychecks and bills come monthly. Plus, increasing the time between payments also increases teen responsibility to stretch those dollars. If your teen has buzzed through his or her spending money by the 10th, waiting for the 1st of the month can be a long time.

How long

Some experts say that when your teen starts to earn money at a part-time job, you can begin to reduce the amount of the allowance. The money burden is beginning to shift from inside the family to outside the family. If teens find they're running short of money, then they have choices: 1) review money management practices, with an eye toward spending 2) adjust their lifestyle, or 3) work more hours. However, working more hours during the school year detracts from studying. A better idea is to work longer hours during the summer and cut spending.

"Spending" money

Do you supplement allowances with spending money? Spending money is the money you give your kids to spend on a specific thing or event. It's Sunday and a bunch of kids are going to a matinee. You shell out $15 for the ticket and popcorn. If you supply spending money, then perhaps allowances should not be so generous. After all, you're taking care of entertainment expenses as they arise.

Allowances tied to chores

This is a major controversy. Examine both sides and then make up your own mind.
Pro-chore advocates. On the one hand, some experts say that kids have to learn the connection between money and earning it. To tie allowances to chores does that. The message to kids is that you earn the allowance – you are not simply entitled to it. The real world expects work in exchange for money.
The anti-chore advocates. What happens when kids don't do the chores? If you dock their pay, you're depriving kids of their money management lesson, which is supposed to be the purpose of allowances. Another problem: where does paying for chores end? Do you pay kids for everything they do around the house? Does paying for chores teach kids to expect pay every time they contribute to the good of the family? That's not realistic. Who pays a parent for doing the laundry and shopping? Kids must help with the running of the household. Bigger chores – washing windows – deserve pay.

Pay on time

It's a way to teach your child that commitments have to be kept and that people depend on one another.

Don't cave

Here's the scene. Your teen asks you for an advance. He's worked his way through his spending budget, and this great opportunity has come along. If you cave in, he misses the lesson of keeping money in reserve for unanticipated expenses. Bail him out often enough, and you undercut the lesson he's created for himself.
Look at the issues, and talk them over with your partner. See what fits your philosophy and works best for you. Do you intervene in how your teens handle their allowance? For answers, go to Whose Allowance Is This Anyway?