Parent Talk / March 2007
Money in the Genes
Kids know money is important, they know they need it and most expect to have it, in quantity, without necessarily understanding how that might happen. Teachers and televisions play important roles in teaching children about money, but nothing beats parents for teaching real life money management. Morality is just one part of a family’s values. How money is earned, handled, saved and spent is a whole other set of equally important family values best taught at home.
Parents have plenty of opportunities to discuss money, whether it’s with the first grader who wants to push the ATM buttons, the third grader who helps look for the best deals at the grocery store or the teenager planning for her prom. Parents want to send their offspring into the world as independent adults who know how to manage their money.
It’s never too early to start.
Experts say experience is the best teacher. The experience of an allowance is one of the very best teachers. Kids learn how to set priorities, make spending decisions, and discover the benefits of saving toward a goal when they have, say, ten dollars a week to do what they want. Even young children quickly begin to see the benefits of price shopping. For teens, it can have a major impact. And they are the ones spending more than $170 billion each year of their own and their parent’s money.
Teenagers are often surprised at how cash flows in a checking account. Many don’t understand about balancing a checkbook, or at least keeping up with checks that have been written. Handling a checking account is one of the most basic skills a child should master before leaving home. Parents can co-sign or open a custodial account for children under eighteen. Any teen that begins a part time job, should open an account and learn how to keep it balanced.
Credit cards can be a convenience or a catastrophe. Many parents that equipped their college freshman with a credit card have been shocked when charges, however innocently, quickly racked up. Most teens don’t understand that using a credit card is basically taking out a loan. Even more don’t understand the cost of late fees and interest charges.
Parents have to explain how interest charges work, showing on paper the consequences of minimum payments at maximum interest. Time spent at this task can save a bail out down the line for many families.
One way parents can encourage regular saving is to match any funds put in a saving account. Small amounts over time become big amounts, and a compounding calculator can be a convincing argument for the practice.
Parents have another important way to get across the message of saving-do it themselves. Kids notice if parents just go get what they want or if they plan purchases.
Whether household bills are paid by check or online, parents can ask their child to help them get organized and discuss bill-paying basics like when bills are due, late fees and payments sent on time. Parents may be reluctant to discuss the family’s financial situation, sometimes because of a concern for privacy, but sometimes because of their own feelings about budgets, credit and savings. But its the last chance parents may have to help their children become successful money managers.
As teens head off to college or go off on their own, many take their first steps directly into debt. Some companies count on the incoming ignorance of incoming freshmen, automatically issuing new students a credit card. Some undergraduates are still financing pizzas from their first semester when they get a diploma.
Although it’s tempting for parents to give teens advice and share what they know, what kids really need is a chance to practice and build their financial knowledge and skills in ways that are relevant to them.
Some parents have traded in their ATM, the contemporary money tree, for an envelope. They put all spending money for the week in an envelope, and have their kids help take money out until it’s gone. The message rests in not refilling the envelope until the next week.
As children grow older, they can participate in family discussions about money. To cut back, ask children what they might do to help, like checking out movies from the library rather than the video store.
Nearly two thirds of American teens expect to be millionaires by their forties or before. Most parents will just be happy to see them employed, and not in debt. Both groups need to get started now.
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