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The gift that keeps on giving

The holiday season, when children are devising their wish lists and their own shopping lists, is a perfect opportunity for parents to talk candidly with their children about money.

Campbell encourages parents to be open: Sit down and discuss your own budget, how much you earn, how much goes to taxes, bills, living expenses and savings. This discussion can be catered toward children of all ages. When you afford children this respect, chances are they'll have a better understanding of why they won't find the entire Sears Wish Book under the tree or why spending $300 on one pair of shoes is a stretch.

Discuss financial limitations in a positive way, cautions Campbell: "You don't want to label yourself as poor." This burdens children and can actually backfire later on -- adults who grew up hearing there was never enough might come to overindulge as a means to shake the stigma.

"Everyone has attitudes and feelings about money which are based upon observations and experiences of childhood," write Danes and Dunrud. "How money was handled in your family when you were a child will greatly affect how you handle money with your children."

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While the holidays can be stressful, it's also important not to lash out at children and accuse them of being greedy. "What kids hear is 'I'm bad,'" says Campbell. "What kids need to hear is we need to make choices." This is true of every family, regardless of income.

Teach, then trust
As part of learning, children have to be empowered to make financial decisions. Unless yours are teenagers with jobs, chances are their money actually comes from you. This doesn't mean you have to be a 24-hour human ATM. If you don't already have an allowance system, this might be a good time to introduce one. It's a great way to illustrate money management skills and the importance of financial responsibility and discipline.

"Allowances are a learning tool, but you also want to make them understand that everyone has to work for a living," says Campbell, who advises that allowances be doled out regularly and not be tied to chores (helping out should be a base responsibility). However, it's OK for parents give kids the opportunity to earn extra money by doing jobs above and beyond the usual list of chores.

Once they have their earnings in place, encourage children to write out a list of who they want to buy for and devise a budget based on their savings and any amount you might be willing to contribute, either outright or as a loan.

Lend a hand
It's OK to lend money to children -- in fact, it can be a valuable experience -- but according to Danes and Dunrud, there are a few key rules to follow:

  • Never loan children more than they can repay and then end up forgiving the loan.
  • Keep the amount realistic for their financial means.
  • Draw up a contract for any loan with your child, no matter what age. Charge interest or set up a grace period within which no interest will be charged. Use a loan payment book and explain how it works.

Once kids understand what goes into earning, saving and spending their own money, they'll be far more understanding when you set limits on your holiday spending. After all, it's not enough to encourage kids to be fiscally responsible when parents are drowning in debt and financing the holidays with plastic.

"Lead by example," says Campbell, adding: "Teaching your children about money management shouldn't just happen once a year. It's something that should happen all the time." As a result, fulfilling Christmas wishes will be a pleasure, not a burden.

-- Posted: Dec. 17, 2007
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