11/28/2012 3:00 PM ET|
How to raise financially savvy kids
Providing everyday learning opportunities and hands-on experience will start your child off on the road to a financially savvy future.
Kids everywhere are in school to brush up on their math, English and geography skills. One lesson they won't get in the classroom, however, is arguably one of the most important for their future success: How to smartly and responsibly handle money. That is a course we leave to parents, who do not get a lesson plan.
"Parents do great teaching kids good manners and how to be safe, make their beds and be culturally savvy," says Mary Hunt, personal finance expert and author of the recently released book "Raising Financially Confident Kids." "But so very often parents neglect the most important thing of all — to prepare them to be financially astute."
Hunt says teaching good money skills can be a blind spot for parents because so many feel financially inept themselves. "Parents have this notion that because they are in debt or not saving enough, they have no basis to teach their children about money." They're wrong, Hunt says. Teaching financial literacy is like teaching any language. She provides a breakdown of how to talk about money, make use of everyday learning opportunities and provide kids with hands-on experience, so they can learn firsthand.
How to talk about money
When do you need to begin thinking about teaching money skills? "You start the moment you drive home from the hospital," Hunt says. Kids are more likely to do what you do than do what you say, so right from the beginning it's important to model healthy financial behaviors and talk often and calmly about money.
The first lesson kids must learn is that money has value, and when you spend it, it's gone. When children are young, Hunt suggests always using cash when you're with them rather than credit or debit cards. "Cash is very visual, clear-cut and not confusing," she says. "Credit sends a mixed message to kids." Otherwise, they might have trouble grasping the concept of spending and believe that a magic card gets you anything you want.
Another important conversation is the difference between needs and wants — necessary expenditures versus the just-for-fun stuff. Hunt says parents should reinforce through words and actions that it's important not to spend more money than you have. One good way is to keep the just-for-fun purchases in check by not giving in to a child's every request or going overboard yourself. However, Hunt warns against saying, "We can't afford it." For children, that translates to, "We're poor" and worries them. Instead, she suggests saying, "We choose not to spend our money that way."
Allowance ground rules
While allowance can be a controversial topic for many parents, Hunt says that giving children allowance is one of the best ways for them to learn how to handle money on their own. She suggests starting at age 6 and recommends $1 a week for their age ($6 a week for a 6-year-old and $15 a week for a 15-year-old). Start off with a weekly allotment and then extend it to bi-weekly for pre-teens and monthly for teens. That way, they'll be continually challenged to plan and make it last longer.
Hunt says parents need to make it clear to the child what his responsibility is. Explain that the house, car, food and utilities are what parents pay for, and the child should consider his allowance personal spending money. Also, explain how you expect him to manage the money. Hunt recommends the following split: 40% goes toward spending; 40% toward short-term savings, such as for a new bike or toy; 10% toward long-term savings, such as college or a car; and 10% toward giving. For young kids, labeled jars work to separate the money. Once they're older, you can set them up with bank accounts that mirror the disbursements.
When kids have their own money, Hunt says, "It's important they make choices and then live with the consequences." That means: This is their money to do with as they please. If they spend a month's allowance in the first week, too bad. Do not give them a loan. The point of the allowance is to teach them how to save for what they want. By experiencing negative consequences firsthand, they'll learn to make smarter choices.
Top teaching opportunities
Routine tasks and chores can be great opportunities to show your kids how to handle money. Hunt recommends involving children in grocery shopping to help them understand planning, saving and finding the best value. Take them to the store and let them hold the list to demonstrate the concept of purposeful shopping. Point out the different pricing structures and brands. Ask them: Is it a better value to get 20 ounces for $4 or 40 ounces for $6? They'll learn value and get to practice their math skills. However, Hunt cautions against taking children window-shopping or over-exposing them to stores, which may encourage consumerism and impulse buying.
The bank can be another good field trip. Even though most modern banking is done online, Hunt says it's important to bring kids to a physical branch to show them how it works. Let them watch you make a deposit, or sit down with a bank manager and encourage the child to ask questions. Hunt says age 10 is a good time to help them open a savings account, teach the concept of interest and allow them to manage and track its progress online. Once they're old enough to get a job, they need to have a checking account and debit card.
Many other teaching opportunities will present themselves naturally. As a way to teach the mechanics of credit, open up a credit card offer and walk your child through what it means to delay paying, carry a balance and pay interest. Use a first paycheck to explain taxes, and use apartment- or house-hunting to explain the concept of a mortgage.
"Keep teaching your kids new and more complicated concepts as they get older; they'll understand," Hunt says. "It's our job as parents to give them roots and wings, so they can survive and thrive in the real world."
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I agree that this is important, but how do you expect parents to coach their kids to be financially savy when half the parents out there have no clue themselves? Anyone living hand to mouth (paycheck to paycheck) and that probably is half the country are in the breadline if they miss more than a couple of paychecks.
I lived the first 5 years of my married life working for minimum wage type jobs. My wife and I worked two jobs sometimes. When we got married our net worth was maybe $200 and everything we owned fit in the back of a $50 worn out 57 chevy stationwagon that we got from wife's parents for our wedding present. Within a year we probably had saved up $1,000 (alot at that time when working for $2/hr) which was about 3 months total living expenses at that time.
So, bottom line is that no matter what your income level you can be financially disiplined and save money. You just have to want to. Today with the welfare society we have, most people just have the attitude to let the government take care of them. After all why work when the freebies the government will give you allows you to take life easy and get by just fine.
As parents we are fighting an uphill battle, children need to be taught responsibility for their actions along with money management and it’s not happening. Sitting on their parents couch, watching movies on their parents DVD Bluray player, their choice of Xbox, PS3, or WII on their parents big screen TV, surfing the Internet, keeping their face book page updated letting all their friends keep up with their wonderful daily lives and expressing their oh so important opinions. Driving their car provided by their parents to hang out with friends and party. It’s a great life style what else is needed. When the young adults begin having children and start trying to take on the responsibilities of having and providing for a family they are unable and untrained to so. The kids get in the way; grandparents will watch the kid(s) so they can go party and make more kids. A job that is a real life style killer, but that is taken care of by the nanny state. The government will pay to have the child, medically provide for the child, feed the family and child, and house the family. No job required to continue to live the life style their accustomed to and desire. I am amazed at how family and friends game all the different government systems, and continue to drain the parents of everything they worked for, and the grandparents feel they have to help because of the grandchildren and it’s not the grand childs fault. There is no need or desire to succeed as an American you are entitled, it is expected, this is what you have been taught and shown by your, parents, your family and your government for your entire life.
Money managment is an important lesson to learn. My father told me that if you wanted anything, you went out and earned it. His way of forcing me to purchase my own stuff resulted in resentment of my siblings. I was earning money so that meant that he no longer had the responsibility to provide the essentials a child needs They, however were not earning and were provided for. It sent mixed messages, however I learned early on that I could manage life on my own, even if it meant that I would have to forgo many things.
The true lesson in money management came when to me when I became paralyzed from the waist on down. I was severely in credit card debt, didn't have any savings, didn't have any type of retirement and was renting a lil' place. With no income coming in, no savings whatsoever and without any support, I had no choice but to continue working.
I turned my financial life around in 2 and a half years and then went through several hardships before I finally got the break I needed. It wasn't easy, but today I own my home outright and I have no debt whatsoever. I am not rich by any means, but I have everything I need and some of what I want.
However said, I no longer have any retirement savings, but then again, I am not living hand to mouth at the moment. Anything can happen, both good and bad, but my injury taught me a lesson in frugality and I am extremely grateful to just be where I am today.
So if you can help teach your children the value of a dollar by having them earn it, they will appreciate it much more in the long run.
I am always looking for new ways to get my children to be motivated to do well in school and to dream big. I get them involved in many things. I even bought a board game that specifically teaches them how to manage money. Recently I bought 2 copies of an interesting book : fir Children 'how to become' rich, successful & do well in school.
I think it's a great idea that does the two things I want - motivate a child to do better in school #1 and then it motivates them to think big, strive for more and to work for bigger dreams.
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