Teaching children how to manage
in a piggy bank is a good start, but teaching kids to save often begins with setting
a good example.
Kids are like sponges. Some financial
planners say that when children watch their parents budget each week, save for
a vacation or write checks, it not only reinforces good savings habits, but debunks
the myth that money grows on trees.
should see where the money goes and what your long-term savings strategies are,"
says Ron Meier, a professor at the College
for Financial Planning in Greenwood Village, Colo.
buying power of youth
Young people have come to form a
powerful demographic market in terms of their buying clout, spending roughly $141
billion in 1998, according to teenage
Research Unlimited, based in Northbrook, Ill. In addition to the money they
earn, their income may be supplemented by financial gifts from parents, grandparents
Managing that trove of cash requires
discipline from both ends -- child and parent. The parent can help the child set
short-term and long-term savings goals while allowing enough freedom to let her
decide specific financial priorities.
kids hear only the negative messages about money from their parents, like 'Do
you know how hard I had to work to buy that toy?'," says Brenda Wade, a family
psychologist based in San Francisco. "That makes money a scary and punishing
concept for kids -- definitely not the message they need to hear."
erase the fear, a number of consumer groups are reaching out to children to teach
them about money management. In April, thousands of bankers came from behind their
oak tables and went out to schools to teach students about saving and money management.
Promoting its third annual National Teach Children
to Save Day, the American Bankers Association Education Foundation spoke to more
than 125,000 kindergartners, elementary school children and junior and high school
The little ones learned the fundamental
concept of saving money while older students tackled compound interest, budgeting,
setting goals and managing money.
financial facts of life
many people go from piggy banks to credit cards without learning the basic financial
facts of life," said Donald G. Ogilvie, executive vice president of the education
foundation. "Our goal is to help students become better informed consumers
in the financial marketplace."
So, when is
it the right time to start teaching kids about money?
children start saying "I want" when they go to a store, "you'll
know it's time to start talking to them about money," says Pamela Hughes,
a senior financial consultant in Merrill Lynch's Seattle office.
the children have received a substantial amount of money as a gift, a piggy bank
is still an appropriate place for 3- and 4-year-olds to keep their savings, Hughes
says. She suggests parents help their children find pictures of the toys or items
they want to save for, then tape them to the side of the bank. That gives them
a reminder of why they're saving money. Parents can also teach pre-schoolers about
money by separating coins into piles by color and size and discuss their value.
kids may be able to grasp the concept of how interest is earned on a savings account.
At the grocery store and other places, parents should explain sales receipts and
have children clip coupons. Likewise, before venturing off to the mall or the
toy store, a family "wants" list posted on the refrigerator can show
that not all wants can be bought.
For pre-teens, saving money goes hand-in-hand with
regular allowances. Wade recommends a "third-third-third" concept: one-third
of the allowance or earnings can be spent immediately -- to satisfy instant "must
have it now urges"; another third goes into short-term savings -- for a new
bicycle or school clothing; and the last third gets reserved in long-term savings
-- such as for college.
As for how much of an
allowance to give a child, opinions differ: "Some parents may require their
child to work for an allowance, others will take the child's age, divide by two
and that will be the weekly allowance," Wade says.
that money is earned or rewarded, once the child grasps the notion of saving regularly
and collecting interest, open a passbook account in his or her name. Many banks
let children start accounts with as little as $10 and most will waive any penalties
for small balances. To encourage regular savings deposits, some parents match
the amount the child contributes to the account. At this age, parents should allow
their children to participate in family financial discussions about what to buy,
how to save more, how to cut expenses, and groups and organizations to which the
family will contribute.
When a child reaches age
eight or so, parents can also start explaining how businesses operate and how
investors buy and sell stocks. For a fun way to teach kids about stocks and how
they work, make a game of it, suggests Robert J. Manning, a portfolio manager
at MFS Investment
Management, a mutual funds group based in Boston.
everyone in the family pick their favorite company -- McDonald's, The Gap, Walt
Disney, Nike -- and invest $100," Manning says. "Then show your kids
how to keep track of the stocks' daily progress through the newspaper's financial
section." Give a prize to the person whose stock goes up the most over each
month, he adds.
teenagers in junior high
school and high school can start to make adult financial decisions, such as deciding
whether to have a part-time job. Before they apply for jobs, discuss work hours
with regard to study time and household responsibilities and decide whether allowance
should be continued.
"This is a good age
for teenagers to do household tasks, such as preparing a grocery list and actually
doing the shopping," says Meier.
that older, responsible teenagers should be informed of where important financial
documents -- such as the deed to the house -- are kept. Meier suggests "It's
not a bad idea to discuss ways the family may cope should one parent lose a job,
this way, children know the reality of what happens should a financial setback
occurs -- it's an important life lesson that will help them later."
not knowing where to start, can take their pick of a number of online and traditional
savings tools available.
One organization, the
Coalition for Personal Financial Literacy in Washington, D.C., aligns consumer
groups with high schools and universities to teach all aspects of money management
from balancing a checkbook to explaining the importance of short- and long-term
saving and investment strategies.
examples at home
"The majority of them learn at home,
which is not necessarily a good thing, when you consider the examples adults are
setting with their own personal finances," says Dara Duguay, executive director
What are they learning at home?
Duguay says a 1997 Jump$tart survey of high school seniors revealed that 27 percent
thought they would earn the most by putting their money in a bank savings account.
Nearly one-third thought the retirement income that people receive from their
former employers is called Social Security.
"We can't fault our children for getting
wrong information -- like most good and bad habits, we as parents
have to set the example," Duguay says.
to online banking
people are among the fastest growing group using the Internet, parents can educate
their children about shopping online. iCanBuy.com,
an online finance site for teens and kids, allows parents to use a credit card
to create an online debit account for their child, then set spending limits and
decide which retailers are available for shopping.
company has also linked up with Security
First Network Bank to allow teens and kids to have online interest-bearing
savings accounts. To be eligible for this promotion, parents must open an interest-bearing
savings account with their child at SFNB and deposit a minimum of $100. SFNB has
agreed to waive the fees normally associated with this account.
helpful organization is the National
Center for Financial Education. This nonprofit group, based in San Diego,
helps people do a better job of saving, spending, investing, insuring and planning
for their financial future. The children and money section offers tips on spending
practices, allowances, part-time jobs and more.
the bevy of tips and tools available, Wade says parents should also discuss what
money doesn't do: "Money is simply a tool that we use to take care of our
material needs but it can't buy equally important needs like love, friendship