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CHILDREN AND MONEY - TIPS FOR PARENTS

Children and Money— Tips for Parents

On behalf of American Financial Solu-tions, I’d like to welcome you to part 7 of our 8 part series on personal fi-nancial management. This chapter is Children and Money—Tips for Parents. It provides hints and suggestions for parents and teachers- about how to instill good financial habits in children.

A good starting point is to reflect on your own childhood and ask “what experiences or opportunities in your own life led to your perceptions about money management?” You might find that your child will benefit from taking the path you took, or avoiding finan-cial traps you experienced.

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Yourself Chapter 7Participants Workbook

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Be or Become a Good Financial Role Model

• Live Within Your Means

• Set Financial Goals

• Spend Money Conservatively

• Build Wealth Over Time

• Keep Financial Risk at a Minimum

Of course, the best way for parents to instill good financial habits in children is to lead by example. If you already are a good financial role model, focus on demonstrating and communicating the methods you use to handle money.

By living within your means, spending conservatively and focusing on the long term building of wealth, you are provid-ing good lessons for your children.

Allow children to handle and use mon-ey as soon as they can count. When you are shopping at the grocery store, give them a small amount of money to buy one favorite thing. Allow them to choose the item, pay for it and count the change they receive. This will get them used to the concept that things cost money.

If money management has always elud-ed you, it is imperative that you work on your own financial weaknesses. One way to do this is to take courses such as the Investing in Yourself series, to learn and more importantly, to dem-onstrate, good financial practices.

At the present time, only 8 states in the nation require students to learn basic financial management as a high school graduation requirement. There-fore the burden of this important life lesson falls on parents or teachers who elect to include this in their curriculum.

Children and Money—Tips for Parents �

Aspects of Money

A vehicle for satisfying Wants & Needs

Needs: Food, Clothing, Shelter, Security

Wants: Non-necessities that add enjoyment

• Keeping up with the In-Crowd

• Immersion in TV advertising, other media

• Seeking identity, independence

• The American culture—buy now, pay later

Let’s take a moment and delve into some interesting aspects of money. We know that money is necessary for the satisfaction of wants and needs. Basic needs include food, clothing, shelter, and security.

Assuming that the basic needs are satisfied, the possession of additional money adds a great deal of enjoy-ment to life—but can lead to some thorny and sometimes serious financial results. A person who always tries to keep up with the Joneses by purchas-ing the latest, the biggest and the best may find that over-consumption leads to a sinkhole of debt. A child will be exposed to peer pressure in school and will want to be in the in-crowd, wear brand name clothes, listen to music on an MP� player, etc.

As we all know, TV and other media advertising fuels these “wants.”

Additionally, the child’s striving for identity and independence contributes to the “must have it” mentality. Finally, the American cultural mantra of “buy now, pay later” creates a major chal-lenge for any parent who wants to raise a financially savvy child. Parents must learn to set realistic limits on their children and avoid giving in to such pressures.

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Learning by Doing: Financial Activities for Kids

• Earning Money

• Budgeting Money

• Spending Money

• Borrowing Money

Given these challenges, how should a parent or teacher proceed, in providing a constructive environment for respon-sible financial behavior?

A good way to organize your approach with children is to focus on the actions, or activities surrounding the use of money. If you consider each one of the activities listed on this slide separately, it becomes apparent that each activity leads to a type of satisfaction—either tangible or intangible, that will help to shape the child’s overall perception of money.

Look at each of the activities, and we’ll go over ways in which children can get the most from their financial experi-ences.

Earning Money

As soon as your child is old enough to count and understand the concept of money, you should start giving them a small allowance.

There are two trains of thought on this issue. Some parents prefer to give al-lowance with no strings attached; oth-ers will give allowance on the condition certain rules are met, e.g. minor chores. Parents must make their own decision about this but the latter suggests to the child that money must be earned.

Parents can give a child the ability to earn extra money by adding one time or occasional chores, for example: mowing the lawn or washing the car. Chores must be age specific.

The important lessons to learn are:

• Money must be earned

• You can earn more by doing extra work

• Money has value and can be used to get things we want and need

• Sharing Money

• Saving and Investing Money

• Setting Financial Goals

Children and Money—Tips for Parents �

Budgeting Money—Allowance Worksheet

your child to the bank or credit union to open a savings account. Teach them how to deposit and withdraw money. Encourage your child to get into the habit of saving a little as soon as they receive their allowance. Decide on an amount to save every month and then add to that if there is money left over.

The “Needs” of most children are being met by their parents so their allow-ance will be specifically going to their “Wants.” Teach your child that the way to purchase those wants is to save until they have enough money. Discuss needs and wants with your child so that they will understand that needs must always be their priority when they are budgeting as an adult. Use your household budget as an example.

Now that your child is earning an al-lowance, it is time to help them learn how to use their money wisely. Main-taining a simple budget and setting goals is a good place to start.

Have your child use the simple Allow-ance Worksheet which you will find in the pull-out section in the back of the workbook. You will see that we have included an area for Financial Goals that the child may be trying to achieve. For example: the purchase of a new toy, piece of clothing, etc.

There is an area for Allowance Earned, Money earned for extra chores, Ex-penses and Savings.

Take the time to sit down with your child and encourage them to make decisions about what they want to do with their money. For very young chil-dren, have a piggy bank for savings. When the time is appropriate (usually between the age of 11 and 1�), take

Friday

Saturday

Sunday

Monday

Tuesday

Wednesday

Thursday

TOTAL

ALLOWANCE/ExTrA EArNiNgsdAy sAviNgs MONEy sPENT BALANCE

Weekly Allowance Worksheet

$ 10.00

washed car: �.00

$15.00

$ every week: 1.�0

extra savings: �.00

$5.50

$ snacks: �.00

DVD rental: �.��

candy: 1.00

book: �.��

$9.50

$ 6.�0

�.��

8.��

7.��

00.00

00.00

Current Financial Goal: New roller Blades

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spending Money

• A Decision-Making Experience

• Spur of the Moment vs. Planned Expenditures

• Anticipation vs. Satisfaction

• Learning from Mistakes

Spending money should be a motivat-ing experience. After dreaming for some period of time about a certain product, we all love that moment when we decide to take the plunge and buy that something special. Part of what makes it special is the anticipa-tion—which grows from day to day.

Thus, the planning aspect of the purchase should be a pleasurable experience—find the right brand, at the right price, and from the best dealer. A parent should encourage a child to engage in this planning process—by assisting them with shopping for the item, comparing prices, encouraging them to save up the money and pos-sibly helping to finance the purchase. These are all benefits of a well-planned spending process.

Sometimes a child will want to use their own money to make a purchase that you know is not particularly sound. For example the purchase of a toy that is likely to break easily or a piece of clothing that is poorly made and not liable to last. You can certainly give advice but if they are adamant let them make the purchase. A valuable lesson can be learned from such a mistake and you can use this to teach your child about shopping for quality and not making rash decisions.

Borrowing Money

• The details of borrowing…”terms”

• What to borrow for

• Use of credit and credit cards

If a child is of sufficient maturity, borrowing money can be a valuable experience. However, a parent should have control over what the borrowing is for. For example, a child who needs a bicycle in order to start a paper route might benefit greatly from borrowing to finance the purchase. Another good example might be borrowing to pur-chase equipment for participation in a school sports program.

The experts say that a loan should be drawn up formally, with principal and interest terms defined, and all items in writing. The loan might be between child and parents, or in some cases can be arranged through a cosigning agreement with a store. A success-ful purchase and repayment for a significant item like a bicycle can leave a strong impression on a child—and pave the way for successfully repeating the experience as an adult.

A good time to introduce a child to using a credit card is when they are a senior in High School and old enough to shop alone. Credit cards have be-come a part of life and it is important to teach your child the benefits and pitfalls of credit before they are old enough to establish it on their own. The best way is to open a Secured Credit Card with your bank. Money

Children and Money—Tips for Parents 7

must be deposited into such an ac-count and the card is used somewhat like a debit card. If the child is under 18, the card will be in the parent’s name with the child listed as an au-thorized user. The benefit of this is that it allows the child to learn about using a credit card without the risk of overspending and they can safely shop without carrying cash. Carefully read the terms and conditions before open-ing such an account.

It is important that the child pay for purchases when the statement arrives, out of earned money. Use your own credit card statements to explain the process to your child. Show them the current balance, APR, minimum pay-ment due and how interest accrues on purchases if they are not paid in full each month.

sharing Money

• The Satisfaction of Giving to Others

• Charitable Donations

• Giving of Your Time and Effort

Parents should be on the lookout for opportunities for children to share some of their money. You may want to encourage your child to budget a small portion of their allowance to save to help those less fortunate.

To make this exercise real and benefi-cial choose something that your child can participate in. For example, they might save to purchase food for the local food bank and then, with your help, deliver the groceries.

As your children get older and you start to explain the tax system to them, you can explain the benefits of charitable donations being tax free.

Use this opportunity to teach your child about volunteering in the community. Community service is becoming a high school graduation requirement in many states and will also help if your child plans to apply for college scholarships.

saving and investing Money

• Your Child’s First Bank Account

• Saving for Goals

• Savings Bonds http://www.savingsbonds.gov/.

• Paying Yourself First

• The Power of Compound Interest

When your child is old enough, open a savings account for them at your bank or credit union. Each week a certain amount of their budgeted money should be put into savings. You may want to consider matching what they save as an additional incentive. Spend the time with your child to review their bank statement each month so that they will appreciate how their money is growing. Help your child to set short and long term savings goals.

As children get older, long term goals such as a college education, a trip to a foreign country or investing in the stock market can make for exciting conversation and re-confirmation of those goals.

Many successful adults got their invest-ing start by purchasing U.S. Savings

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Bonds. This is a good first investment for a child. You can learn more about savings bonds by visiting http://www.savingsbonds.gov/.

Continue to reinforce the concept of Paying Yourself First – that is saving some money as soon as you earn it. (Saving $� a week at 6 percent interest

The Credit report

to credit. Enforce the importance of making payments on time and the consequences of paying late. Discuss interest rates on major purchases such as cars or homes. Show your child his credit report and teach him to read and under-stand it. Discuss Identity Theft and how to avoid it by protecting identifying information. Teens are especially trusting and tend to share important information with special friends – like social security num-bers, PIN numbers, etc. Reinforce that these numbers must not be shared. Friendships don’t always last forever.

It is never too early to start pulling a copy of your child’s credit report. You may have heard in the news re-cently about the increase in Identity Theft and specifically, the stealing of children’s identity. If you are monitoring your child’s credit report, you will catch any problems and be able to resolve them before it affects your child’s credit for life. Simply visit www.annualcreditreport.com – everyone is entitled to one free report from each of the three major reporting agencies each year.

Take the time to discuss the impor-tance of good credit with your child when they are in High School and if and when you introduce them

• Check credit once per year

• www.annualcreditreport.com

• Discuss the importance of good credit

• Warn about Identity Theft

compounded quarterly will total about $�66 after a year, $1,�0� after � years, and $�,��7 after 10 years!) Use the table on Compound Interest in the pull-out section of this workbook to explain how saved money grows.

Children and Money—Tips for Parents �

Helping Children to Set Financial Goals

• Age Specific

• Motivating

• Short Term Goals

• Long Term Goals

Considering the topics we have dis-cussed so far, it is evident that learning about financial management involves teaching the benefits of deferred gratification. Just as adults should set financial goals so should children, on a more simple level.

Goals should be age specific and easy for a child to understand. A child will not be motivated to save for something that he or she is not interested in.

Older children should be encouraged to set short and long term goals. Short term goals might include the purchase of a new sweater or DVD. Long term goals might include saving for college or the down payment on their first car.

Creating a Balance

• Create a good balance for managing money

• Use life goals to teach money management

When teaching your children about money it is important to strive for a balanced attitude toward financial management.

A child should not be encouraged to hoard money, give it all away, spend it all, or invest it all. None of these are healthy approaches to money manage-ment, nor is money the only thing in life.

Focus on life goals—

• Taking responsibility for actions

• Helping yourself and others to be successful

• Completing educating

and show your child how responsible financial management fits into these goals.

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Children and Money—Tips for Parents 11

Summary of this Chapter

In this chapter we have focused on teaching children to manage money.

• start Early – Start teaching your child about money as soon as she can count

• Weekly Allowance – Allow your child to earn money- make chores age specific

• Budget – Teach your child the im-portance of budgeting money and making a spending plan

• saving -Teach your child to save, save, save.

• Borrowing – At the appropriate age introduce credit and credit issues.

• giving – Teach your child to share a little.

• goals – Encourage your child to make financial goals and stick to them

These are vital skills that children will engage in as adults. By practicing each of these skills in the context of childhood, your child will develop the attitudes and expectations that will make him or her a successful manager of money.

An effective way to become skilled in money management is to relate finan-cial management skills to other life skills your child is learning. All of these activities can provide enjoyment and satisfaction throughout your child’s life.

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Evaluation

Please fill out the short evaluation form in the pull-out section of this workbook. This helps us to evaluate the effectiveness of the materials and make improvements.

Please mail or fax your evaluation. You will find information and directions on the pull-out sheet.

Thank you for completing

I hope you will take the other classes in our series. good luck as you continue to invest in yourself!

Children and Money— Tips for Parents

A Division of North Seattle Community College Foundation© 2013 American Financial Solutions. All Rights Reserved

IN THIS WORKBOOK:• Become a role model

• Aspects of money

• Financial activities for kids

• Allowance worksheet

• Helping children set financial goals