Chances
are, there was a lot you didn't know about finances when you reached
adulthood. Your ignorance may have cost
you money in the form of an overdrawn checking account where the bank gleefully
heaped on additional fees, or credit card debt at interest rates that would
have qualified as criminal usury in the Middle Ages. You may have overextended yourself when
buying a car, been mystified by the APR on your home mortgage, or you may be
one of those unfortunate people who ran into a financial predator who sells
high-commission investments, annuities or unnecessary life insurance coverage.
Kevin Kroskey
This article prepared by Bob Veres.
You
don't want your children to learn these lessons the hard way. What can you do to help them master the
complexities of this mysterious thing we call "money?"
The
bad news is that you'll have to home-school this curriculum, since primary and
secondary schools inexplicably don't teach basic money skills, and the only way
your children will be taught about money in college is if they decide to take
financial planning courses that are taught at a fraction of all the colleges
and universities in the U.S.
Just
like any other subject, a money curriculum provides information and teaching
that is appropriate to the age. You're
not going to be able to teach a seven-year-old about graduated income tax rates
or the wonders of compound interest, and she'll have no idea what you mean if
you tell her that your home cost $200,000.
So consider this as an age-appropriate guideline for developing money
mastery in your children.
Ages 6-10
Some
experts say that your child's financial education should begin as soon as he or
she is old enough not to eat the money.
But money is fundamentally about mathematics; when your children can add
and subtract, they can start the money learning process.
Step one: Introduce your
children to coins first. Explain the
value of coins in terms they can understand--how many are required to buy gum,
a candy bar or something else they ask you for as you shepherd them past that
dreaded candy display at the checkout counter.
Help them learn to make change and convert one kind of coins into
others. Later, you can do the same for
bills.
Step two: Begin giving your
children an allowance, and as time goes on, draw an ever-clearer link between
chores and allowance. When children make
their beds, put their clothes in the laundry and take their dishes off the
table, they recognize that their weekly stipend is earned rather than doled out. (This is an area where experts disagree,
because of the possibility that a child will decide not to make her bed and
then challenge you to dock some hard-to-calculate percent of her allowance. But a compromise is to require that the chores be done.)
Pay extra for additional jobs your children perform.
Step three: Encourage your children to save some or all
of their allowance in a piggy bank.
They'll begin to see how the coins accumulate, and how that process can
eventually deliver enough of them to buy something they might desire. This is the fundamental essence of
saving. Interestingly, research has
shown that some children are distrustful of a piggy bank if they can't see
where the money went. The
state-of-the-art in piggy banks is the Money Savvy Pig, a see-through piggy
bank with four slots: save, spend, donate, and invest. The goal is to help kids
learn that money isn't just accumulated to buy things.
Step four: Empower your
children to manage their own money. Let them decide how their allowance will be
used, and let them make mistakes. If
they make impulse purchases, and later want something that costs more than they
currently have, that becomes a teachable moment.
Step five: Incorporate your money mastery teaching into
your everyday activities. In the early
years, use your trips to the grocery store to explain prices. When you go to the ATM, you can explain that
money doesn't actually come from a machine.
Later, when you open bills, you can talk about payment for services like
the phone and cable TV.
Step
six:
Use the power of online gaming for good rather than time-wasting evil. There are online websites and even games that
families can use to get the conversation going such as Thegreatpiggybankadventure.
Other examples include Feedthepig.org, kids.gov, www.doughmain.com and TheMint.org/kids. PNC Bank and Sesame Street teamed up to
create fun videos and games that teach kids about money: http://www.sesamestreet.org/parents/topicsandactivities/toolkits/save. MassMutual, meanwhile, has developed Save!
The Game, an app for the ipad and iPhone that teaches kids the difference
between wants and needs.
Ages 11-13
As your children reach middle school age,
you should start to increase their responsibilities--to help them learn by
doing.
Step
one:
Start to make your children responsible for paying, out of their allowance,
more of their daily expenses--school clothes, school lunches, birthday
presents--and help them create a budget that allows them to save if they buy
wisely. How much money should you give
them? Keep track of what you've been
spending on their needs and desires over several weeks, and arrive at a
reasonable figure that exceeds their weekly or monthly costs by the amount of
allowance you intend them to have.
Step
two:
Have your children set up a savings account, and tell them you'll match every
dollar they put in there. The only
stipulation is that they can't take out the money you put in. That's earmarked for long-term savings and/or
college expenses.
Step
three:
As you shop for groceries or head to the mall, help your children comparison
shop, so they can eventually go out on their own and shop for value. Show them similar items that might have very
different price tags. You might also
consider using cash for your purchases when you go out with your children. They aren't going to learn very much about
money if they see you paying for everything with that magic piece of plastic.
Age 14-17
Your high school-age (pre-college-age)
children will soon need to function on their own financially, so consider these
finishing touches.
Step
one:
Help your children set up a checking account, so they can get familiar with
staying on top of their account balance and pay their expenses by check.
Step two: Explain how debt
works, and show your children a credit card statement (if you have one) that
includes finance charges. A surprising
percentage of teenagers didn't understand that banks charge interest on the
loans they make. Many teens don't even
realize that credit cards are a form of borrowing. Consider giving them additional money each
week or month for gas purchases, and get them a gas station credit card that
they can pay off each month.
Step
three:
Let your children invest. Your child may not yet have the money to buy a
Treasury bill or 100 shares of Apple, but you can buy mutual fund shares at
very low initial payments, and many fund companies have programs especially set
up for teens. Look together at the
fund's most recent holdings report and see how many companies you
recognize--and help your children monitor the performance of the
investment. Show them on a simple
spreadsheet how a regular monthly
investment compounds over 10, 20 and 30 years.
Chances are you, yourself, will be astonished at the accumulation
opportunities of the very young.
Step
four:
Your children have entered the summer job years, which gives them an
opportunity to learn about taxes.
Children who have never held a job before and thought that taxes didn't
need to be paid until April 15 (or not at all) will learn a quick lesson from
their first paycheck statement. Most
employers will be withholding far more tax than your children will end up
owing, and the FICA withholdings provide another teachable moment. (You can, of course, file a W-4 claiming
exemption from withholding, but appropriate payroll taxes will still be
withheld.)
There's more, of course, such as sitting
down with your children and discussing charitable donations (some parents save
all their charity solicitations for six months and then sit down to go over
which look most appealing) and the need to save receipts if your children go
into business for themselves (such as mowing lawns or housesitting
animals). Consider those optional
elective courses in the overall curriculum.
If your children manage to graduate from
this money mastery home-school program, they'll be far better prepared for the
real world of money than you probably were.
And they'll be far more likely to succeed financially than 95% of their
peers, who will enter college with only a dim idea of what a checkbook or
budget is.
Best Regards,
Kevin Kroskey
This article prepared by Bob Veres.